THE EQUITABLE LIFE ASSURANCE SOCIETY

THE EQUITABLE LIFE ASSURANCE SOCIETY

Annual FSA Insurance Returns for the year ended 31 December 2010

Appendices 9.1, 9.3, 9.4, 9.4A & 9.6 from the Interim Prudential Sourcebook for Insurers

Registered Office 20 - 22 Bedford Row, London, WC1R 4JS

Contents

Balance Sheet and Profit and Loss Account

Form 2 Statement of solvency - long-term insurance business 1Form 3 Components of capital resources 3Form 13 Analysis of admissible assets 6Form 14 Long term insurance business liabilities and margins 9Form 17 Analysis of derivative contracts 10Form 18 With-profits insurance capital component for the fund 11Form 19 Realistic balance sheet 12

Long Term Insurance Business: Revenue Account and Additional Information

Form 40 Revenue account 14Form 41 Analysis of premiums 15Form 42 Analysis of claims 16Form 43 Analysis of expenses 17Form 46 Summary of new business 18Form 47 Analysis of new business 19Form 48 Assets not held to match linked liabilities 22Form 49 Fixed and variable interest assets 23Form 50 Summary of mathematical reserves 24Form 51 Valuation summary of non-linked contracts (other than

accumulating with-profits contracts)25

Form 52 Valuation summary of accumulating with-profits contracts 31Form 53 Valuation summary of property linked contracts 37Form 54 Valuation summary of index linked contracts 43Form 56 Index linked business 47Form 57 Analysis of valuation interest rate 48Form 58 Distribution of surplus 50Form 59 With-profits payouts on maturity (normal retirement) 51Form 60 Long-term insurance capital requirement 53

Supplementary notes to the return 54

Abstract of the Valuation Report 60

Abstract of the Realistic Report 78

Additional information on derivative contracts 98

Additional information on controllers 99

Directors' Certificate 100

Auditor's Report 102

Statement of information on the with-profits actuary 105

23032011:10:15:47

Form 2

Statement of solvency - long-term insurance business

Name of insurer Equitable Life Assurance Society

Global business

Financial year ended 31 December 2010

Adjusted solo solvency calculation Company GL/registration UK/ day month year Units number CM

R2 37038 GL 31 12 2010 £000

As at end of As at end ofthis financial the previous

year year

1 2

Capital resources

Capital resources arising within the long-term insurance fund 11 359200 612785

12

13 359200 612785

Guarantee fund

Guarantee fund requirement 21 79366 76796

22 279834 535989

Minimum capital requirement (MCR)

Long-term insurance capital requirement 31 238097 230388

Resilience capital requirement 32

Base capital resources requirement 33 2280 2346

Individual minimum capital requirement 34 238097 230388

Capital requirements of regulated related undertakings 35

Minimum capital requirement (34+35) 36 238097 230388

Excess (deficiency) of available capital resources to cover 50% of MCR 37 240151 497591

Excess (deficiency) of available capital resources to cover 75% of MCR 38 180627 439994

Enhanced capital requirement

With-profits insurance capital component 39 121103 382397

Enhanced capital requirement 40 359200 612785

Capital resources requirement (CRR)

Capital resources requirement (greater of 36 and 40) 41 359200 612785

42 0 0

Contingent liabilities

51Quantifiable contingent liabilities in respect of long-term insurance business as shown in a supplementary note to Form 14

Capital resources allocated towards long-term insurance business arising outside the long-term insurance fund

Capital resources available to cover long-term insurance business capital resources requirement (11+12)

Excess (deficiency) of available capital resources to cover guarantee fund requirement

Excess (deficiency) of available capital resources to cover long-term insurance business CRR (13-41)

1

23032011:10:15:47

Form 2

Covering Sheet to Form 2


Global business


Ian Brimecome, Chairman

Chris Wiscarson, Chief Executive

Tim Bateman, Finance Director

London , 30/03/2011

2

23032011:10:15:47

Form 3(Sheet 1)

Components of capital resources


Global business

Financial year ended 31 December 2010Company GL/registration UK/ Units number CM

R3 GL 31 12 2010 £000

General Long-term Total as at Total as atinsurance insurance the end of the end of business business this financial the previous

year year1 2 3 4

Core tier one capital

Permanent share capital 11

Profit and loss account and other reserves 12

13

Positive valuation differences 14 360622 360622 614783

15

16

Core tier one capital (sum of 11 to 16) 19 360622 360622 614783

Tier one waivers

21

Implicit Items 22

Tier one waivers in related undertakings 23

24

Other tier one capital

25

26

27

28

31 360622 360622 614783

32

33

34

35

36

37

39 360622 360622 614783

Other negative valuation differences

Deductions in related undertakings

Deductions from tier one (32 to 36)

Total tier one capital after deductions (31-37)

Total tier one capital before deductions (19+24+25+26+27+28)

Investments in own shares

Intangible assets

Amounts deducted from technical provisions for discounting

Perpetual non-cumulative preference shares as restricted

Perpetual non-cumulative preference shares in related undertakings

Innovative tier one capital as restricted

Innovative tier one capital in related undertakings

Fund for future appropriations

Core tier one capital in related undertakings

Unpaid share capital / unpaid initial funds and calls for supplementary contributions

Total tier one waivers as restricted (21+22+23)

day month year

37038

Share premium account

3

23032011:10:15:47

Form 3(Sheet 2)



Global business


R3 GL 31 12 2010 £000


year year1 2 3 4

Tier two capital

41

42

43

44

45

46

Upper tier two capital in related undertakings 47

Upper tier two capital (44 to 47) 49

Fixed term preference shares 51

Other tier two instruments 52

Lower tier two capital in related undertakings 53

Lower tier two capital (51+52+53) 59

61

Excess tier two capital 62

63

69

Perpetual subordinated debt and securities

Total tier two capital before restrictions (49+59)

Further excess lower tier two capital

Total tier two capital after restrictions, before deductions (61-62-63)

Perpetual non-cumulative preference shares excluded from line 25

Innovative tier one capital excluded from line 27

Tier two waivers, innovative tier one capital and perpetual non-cumulative preference shares treated as tier two capital (41 to 43)

Perpetual cumulative preference shares

day month year

37038

Implicit items, (tier two waivers and amounts excluded from line 22)

4

23032011:10:15:47

Form 3(Sheet 3)



Global business


R3 GL 31 12 2010 £000


year year1 2 3 4

Total capital resources

71

72 360622 360622 614783

73 1422 1422 1997

74

75

76

77

79 359200 359200 612785

Available capital resources for GENPRU/INSPRU tests

81 359200 359200 612785

82 359200 359200 612785

83 359200 359200 612785

Financial engineering adjustments

91

92

93

94

95

96

Financial reinsurance - accepted

Outstanding contingent loans

Any other charges on future profits

Sum of financial engineering adjustments(91+92-93+94+95)

Available capital resources for 50% MCR requirement

Available capital resources for 75% MCR requirement

Implicit items

Financial reinsurance - ceded

Deductions for regulated non-insurance related undertakings

Deductions of ineligible surplus capital

Total capital resources after deductions (72-73-74-75-76-77)

Available capital resources for guarantee fund requirement

Total capital resources before deductions (39+69+71)

Inadmissible assets other than intangibles and own shares

Assets in excess of market risk and counterparty limits

Deductions for related ancillary services undertakings

day month year

37038

Positive adjustments for regulated non-insurance related undertakings

5

23032011:10:15:47

Form 13(Sheet 1)

Analysis of admissible assets


Global business


Category of assets Total long term insurance business assets

Company GL/ Categoryregistration UK/ day month year Units ofnumber CM assets

R13 37038 GL 31 12 2010 £000 10

As at end of this financial year

As at end of the previous year

1 2

Land and buildings 11 320666 374929

21222324252627 25252 24439

282930

Other financial investments

Equity shares 41 3207 17188

Other shares and other variable yield participations 42Holdings in collective investment schemes 43 189911 265047

Rights under derivative contracts 44 9198 7124

45 2018608 2047434

46 1960760 2479721

47 240645 218294

48Participation in investment pools 49Loans secured by mortgages 50 747 757

51

52 375 495

Other loans 5354 1133653 503600

55Other financial investments 56Deposits with ceding undertakings 57

58 240276 239096

59Assets held to match linked liabilities

Index linked

Property linked

Loans to public or local authorities and nationalised industries or undertakings

Loans secured by policies of insurance issued by the company

Bank and approved credit & financial institution deposits

One month or less withdrawal

More than one month withdrawal

Fixed interest securitiesApproved

Other

Variable interest securitiesApproved

Other

Other group undertakingsShares

Debts and loans

Participating interestsShares

Debts and loans

Other insurance dependantsShares

Debts and loans

Non-insurance dependantsShares

Debts and loans

Investments in group undertakings and participating interests

UK insurance dependantsShares

Debts and loans

6

23032011:10:15:47

Form 13(Sheet 2)



Global business




R13 37038 GL 31 12 2010 £000 10



1 2

60

61

62

63

71 4121 4328

72737475767778 10719 9235

79

80

81 11251 2919

82

83

84 85010 104650

85

86 613 814

87

89 6255013 6300069

Deductions from the aggregate value of assets

Grand total of admissible assets after deduction of admissible assetsin excess of market risk and counterparty limits (11 to 86 less 87)

Other assets (particulars to be specified by way of supplementary note)

Accrued interest and rent

Deferred acquisition costs (general business only)

Other prepayments and accrued income

Other assets

Tangible assets

Deposits not subject to time restriction on withdrawal with approvedinstitutions

Cash in hand

Dependantsdue in 12 months or less

due in more than 12 months

Otherdue in 12 months or less

due in more than 12 months

Salvage and subrogation recoveries

ReinsuranceAccepted

Ceded

Other

Debtors and salvage

Direct insurance businessPolicyholders

Intermediaries

Reinsurers' share of technical provisions

Provision for unearned premiums

Claims outstanding

Provision for unexpired risks

7

23032011:10:15:47

Form 13(Sheet 3)



Global business




R13 37038 GL 31 12 2010 £000 10



1 2

91 6255013 6300069

92

93 1422 1997

94

95

96

97

98

99

100 2441405 2333075

101 (13878) (20697)

102 8683962 8614444

103

Total assets determined in accordance with the insurance accountsrules or international accounting standards as applicable to the firmfor the purpose of its external financial reporting (91 to 101)

Amounts included in line 89 attributable to debts due from relatedinsurers, other than those under contracts of insurance or reinsurance

Other differences in the valuation of assets (other than for assetsnot valued above)

Deferred acquisition costs excluded from line 89

Reinsurers' share of technical provisions excluded from line 89

Other asset adjustments (may be negative)

Capital resources requirement deduction of regulated related undertakings

Ineligible surplus capital and restricted assets in regulated related insurance undertakings

Inadmissible assets of regulated related undertakings

Book value of related ancillary services undertakings

Reconciliation to asset values determined in accordance with the insurance accounts rules or international accounting standards as applicable to the firm for the purpose of its external financial reporting

Total admissible assets after deduction of admissible assetsin excess of market risk and counterparty limits (as per line 89 above)

Admissible assets in excess of market and counterparty limits

Inadmissible assets directly held

8

23032011:10:15:47

Form 14Long term insurance business liabilities and margins


Global business


Total business/Sub fund ORDINARY LONG TERM

Units £000 As at end of As at end ofthis financial the previous

year year1 2

Mathematical reserves, after distribution of surplus 11 5722004 5498486

12

Balance of surplus/(valuation deficit) 13Long term insurance business fund carried forward (11 to 13) 14 5722004 5498486

Gross 15 15717 18530

Reinsurers' share 16 Net (15-16) 17 15717 18530

Taxation 21 Other risks and charges 22 77300 76700

Deposits received from reinsurers 23 Direct insurance business 31 10258 10923

Reinsurance accepted 32 Reinsurance ceded 33 534 1456

Secured 34 Unsecured 35

Amounts owed to credit institutions 36 5368 7368

Taxation 37 145

Other 38 44763 54895

Accruals and deferred income 39 19870 18781

41Total other insurance and non-insurance liabilities (17 to 41) 49 173809 188798

Excess of the value of net admissible assets 51 359200 612785

Total liabilities and margins 59 6255013 6300069

61 5368 8239

62

71 5895813 5687284

Increase to liabilities - DAC related 72Reinsurers' share of technical provisions 73 2441405 2333075

Other adjustments to liabilities (may be negative) 74 346744 594085

Capital and reserves and fund for future appropriations 75

76 8683962 8614444

Amounts included in line 59 attributable to liabilities in respect of property linked benefits

Total liabilities (11+12+49)

Total liabilities under insurance accounts rules or international accounting standards as applicable to the firm for the purpose of its external financial reporting (71 to 75)

Debenture loans

Creditors

Provision for "reasonably foreseeable adverse variations"

Amounts included in line 59 attributable to liabilities to related companies, other than those under contracts of insurance or reinsurance

Cash bonuses which had not been paid to policyholders prior to end of the financial year

Claims outstanding

Provisions

Creditors

9

23032011:10:15:47

Form 17

Analysis of derivative contracts


Global business




R17 37038 GL 31 12 2010 £000 10

Derivative contracts

Assets Liabilities Bought / Long Sold / Short

1 2 3 4

11 25788

Interest rates 12

Inflation 13

Credit index / basket 14

Credit single name 15

16

Equity stock 17

Land 18

Currencies 19 1222 18840 105683

Mortality 20

Other 21

31 34899 867000

Equity index calls 32

Equity stock calls 33

Equity index puts 34

Equity stock puts 35

Other 36

Swaptions 41

Equity index calls 42

Equity stock calls 43

Equity index puts 44

Equity stock puts 45

Other 46

Total (11 to 46) 51 34899 1222 911629 105683

52 (25701)

53 9198 1222 Total (51 + 52)

THE NOTIONAL AMOUNTS IN COLUMNS 3 AND 4 ARE NOT A MEASURE OF EXPOSURE. Please see instructions 11 and 12 to this Form for the meaning of these figures.

In the money options

Swaptions

Out of the money options

Adjustment for variation margin

Value as at the endof this financial year

Notional amount as at the endof this financial year

Futures and contracts for differences

Fixed-interest securities

Equity index

10

23032011:10:15:47

Form 18

With-profits insurance capital component for the fund


With-profits fund ORDINARY LONG TERM


Units £000

As at end of As at end of this financial year the previous year

1 2

Regulatory excess capital

11 6255013 6300069

12

13 777789 756042

14 39774 39941

15

19 5437450 5504086

21 4944215 4742444

22 173809 188798

29 5118024 4931242

31 198323 190447

32

39 5316347 5121689

Regulatory excess capital (19-39) 49 121103 382397

Realistic excess capital

51

Excess assets allocated to with-profits insurance business

61 121103 382397

62

63

64

65

66 121103 382397

Present value of other future internal transfers not already taken into accountWith-profits insurance capital component for fund (if 62 exceeds 63, greater of 61+62-63-64-65 and zero, else greater of 61-64-65 and zero)

Excess (deficiency) of assets allocated to with-profits insurance business in fund (49-51)Face amount of capital instruments attributed to the fund and included in capital resources (unstressed)Realistic amount of capital instruments attributed to the fund and included in capital resources (stressed)Present value of future shareholder transfers arising from distribution of surplus

Long-term insurance capital requirement in respect of the fund's with-profits insurance contractsResilience capital requirement in respect of the fund's with-profits insurance contractsSum of regulatory value of liabilities, LTICR and RCR (29+31+32)

Realistic excess capital

Regulatory value of liabilities

Mathematical reserves (after distribution of surplus) in respect of the fund's with-profits insurance contracts

Regulatory current liabilities of the fund

Total (21+22)

Regulatory value of assets

Long-term admissible assets of the fund

Implicit items allocated to the fund

Mathematical reserves in respect of the fund's non-profit insurance contractsLong-term admissible assets of the fund covering the LTICR of the fund's non-profit insurance contracts Long-term admissible assets of the fund covering the RCR of the fund's non-profit insurance contracts

Total (11+12-(13+14+15))

11

23032011:10:15:47

Form 19Realistic balance sheet (Sheet 1)




Units £000


1 2

Realistic value of assets available to the fund

11 5437450 5504086

12

13

21

22 7936 16615

23

24

25

26 5445386 5520701

27

29 5445386 5520701

Realistic value of liabilities of fund

31 3844993 4143186

32

33

34 692908 672911

35 294611 290067

36 18946 28406

41 755141 573742

42

43 5535 11058

44

45

46

47 286556 249479

49 1426584 1188717

Realistic current liabilities of the fund 51 173809 188798

59 5445386 5520701 Realistic value of liabilities of fund (31+49+51)

Financing costs

Any other liabilities related to regulatory duty to treat customers fairly

Other long-term insurance liabilities

Total (32+34+41+42+43+44+45+46+47-(33+35+36))

Future policy related liabilities

Past miscellaneous surplus attributed to with-profits benefits reservePast miscellaneous deficit attributed to with-profits benefits reservePlanned enhancements to with-profits benefits reservePlanned deductions for the costs of guarantees, options and smoothing from with-profits benefits reservePlanned deductions for other costs deemed chargeable to with-profits benefits reserveFuture costs of contractual guarantees (other than financial options)

Future costs of non-contractual commitments

Future costs of financial options

Future costs of smoothing (possibly negative)

Realistic value of assets of fund (11+21+22+23+24+25-(12+13))

Support arrangement assets

Assets available to the fund (26+27)

With-profits benefit reserve

Present value of future profits (or losses) on non-profit insurance contracts written in the fundValue of derivatives and quasi-derivatives not already reflected in lines 11 to 22

Value of shares in subsidiaries held in fund (realistic)

Prepayments made from the fund

Regulatory value of assets

Implicit items allocated to the fund

Value of shares in subsidiaries held in fund (regulatory)

Excess admissible assets

12

23032011:10:15:47

Form 19(Sheet 2)

Realistic balance sheet




Units £000


1 2

Realistic excess capital and additional capital available

62 5445386 5520701

63

64 5445386 5520701

65

66

67

68

69

Other assets potentially available if required to cover the fund's risk capital margin

81

82

Additional amount potentially available for inclusion in line 62

Additional amount potentially available for inclusion in line 63

Realistic excess capital for fund (26-(59+65))

Realistic excess available capital for fund (29-(59+65))

Working capital for fund (29-59)

Working capital ratio for fund (68/29)

Value of relevant assets before applying the most adverse scenario other than the present value of future profits arising from business outside with-profits funds

Amount of present value of future profits (or losses) on long-term insurance contracts written outside the fund included in the value of relevant assets before applying most adverse scenario

Value of relevant assets before applying the most adverse scenario (62+63)

Risk capital margin for fund (62-59)

13

23032011:10:15:47

Form 40

Long-term insurance business : Revenue account


Total business / subfund ORDINARY LONG TERM


Units £000

Financial year Previous year

1 2

Income

Earned premiums 11 73673 156164

12 278395 321435

13 428881 (161353)

14 16199 8799

Other income 15 2039 2875

Total income 19 799187 327921

Expenditure

Claims incurred 21 491341 684604

22 81456 114990

23 15 195

24 2858 1649

Other expenditure 25

Transfer to (from) non technical account 26

Total expenditure 29 575670 801438

Business transfers - in 31

Business transfers - out 32

Increase (decrease) in fund in financial year (19-29+31-32) 39 223517 (473517)

Fund brought forward 49 5498486 5972003

Fund carried forward (39+49) 59 5722004 5498486

Interest payable before the deduction of tax

Taxation

Investment income receivable before deduction of tax

Increase (decrease) in the value of non-linked assets brought into account

Increase (decrease) in the value of linked assets

Expenses payable

14

23032011:10:15:47

Form 41

Long-term insurance business : Analysis of premiums




Units £000

UK Life UK Pension Overseas Total Financial year

Total Previous year

1 2 3 4 5

Gross

Regular premiums 11 17567 64880 2518 84965 81524

Single premiums 12 12 54263 384 54659 137087

Reinsurance - external


Single premiums 14 10 9685 74 9769 9462

Reinsurance - intra-group

Regular premiums 15

Single premiums 16

Net of reinsurance


Single premiums 18 2 44578 310 44890 127625

Total

Gross 19 17579 119143 2902 139624 218612

Reinsurance 20 11633 52746 1572 65951 62447

Net 21 5946 66397 1330 73673 156164

15

23032011:10:15:47

Form 42

Long-term insurance business : Analysis of claims




Units £000


Total Previous year

1 2 3 4 5

Gross

Death or disability lump sums 11 12874 20832 1216 34922 37295

Disability periodic payments 12

Surrender or partial surrender 13 24773 213008 6810 244592 330775

Annuity payments 14 5543 61243 8569 75354 77558

Lump sums on maturity 15 44908 319993 5439 370340 444753

Total 16 88098 615076 22034 725208 890381







Total 26 30288 198857 4722 233867 205776


Death or disability lump sums 31


Surrender or partial surrender 33

Annuity payments 34

Lump sums on maturity 35

Total 36

Net of reinsurance






Total 46 57810 416219 17312 491341 684604

16

23032011:10:15:47

Form 43

Long-term insurance business : Analysis of expenses




Units £000


Total Previous year

1 2 3 4 5

Gross

Commission - acquisition 11

Commission - other 12

Management - acquisition 13 135 135 311

Management - maintenance 14 1337 30262 1239 32838 36255

Management - other 15 1966 44696 1821 48483 78424

Total 16 3303 75093 3060 81456 114990




Management - acquisition 23

Management - maintenance 24

Management - other 25

Total 26




Management - acquisition 33

Management - maintenance 34

Management - other 35

Total 36

Net of reinsurance



Management - acquisition 43 135 135 311

Management - maintenance 44 1337 30262 1239 32838 36255

Management - other 45 1966 44696 1821 48483 78424

Total 46 3303 75093 3060 81456 114990

17

23032011:10:15:47

Form 46

Long-term insurance business : Summary of new business


Total business


Units £000


Total Previous year

1 2 3 4 5

Regular premium business 11 15 15 6

Single premium business 12 2311 15 2326 2489

Total 13 15 2311 15 2341 2495

Amount of new regular premiums

Direct insurance business 21 10 19241 46 19297 13471

External reinsurance 22

Intra-group reinsurance 23

Total 24 10 19241 46 19297 13471

Amount of new single premiums

Direct insurance business 25 12 54450 394 54856 137611

External reinsurance 26

Intra-group reinsurance 27

Total 28 12 54450 394 54856 137611

Number of new policyholders/ scheme members for direct insurance business

18

23032011:10:15:47

Form 47

Long-term insurance business : Analysis of new business


Total business


Units £000

UK Life / Direct Insurance Business

Number of policyholders /

scheme membersAmount of premiums



1 2 3 4 5 6

100 Conventional whole life with-profits OB 1 3

120 Conventional endowment with-profits OB savings 1 0

325 Level term assurance 13 7

500 Life UWP single premium 2

700 Life property linked single premium 0

715 Life property linked endowment regular premium - savings 0 10

19

Product code

numberProduct description

Regular premium business Single premium business

23032011:10:15:47

Form 47



Total business


Units £000

UK Pension / Direct Insurance Business





1 2 3 4 5 6

380 Miscellaneous protection rider 1

390 Deferred annuity non-profit 1 1

400 Annuity non-profit (CPA) 1995 24962

545 Individual deposit administration with-profits 293 3 5501

555 Group deposit administration with-profits 465 30 10629

565 DWP National Insurance rebates UWP 19 5707

725 Individual pensions property linked 643 12 510

735 Group money purchase pensions property linked 17839 106 2185

745 DWP National Insurance rebates property linked 2 2654

750 Income drawdown property linked 1 4

905 Index linked annuity 142 2297

20

Product code



23032011:10:15:47

Form 47



Total business


Units £000

Overseas / Direct Insurance Business





1 2 3 4 5 6

395 Annuity non-profit (PLA) 3 172


500 Life UWP single premium 1

510 Life UWP endowment regular premium - savings 0 0

545 Individual deposit administration with-profits 5 23

555 Group deposit administration with-profits 1

715 Life property linked endowment regular premium - savings 0 48

725 Individual pensions property linked 39 1 24

735 Group money purchase pensions property linked 2

21

Product code



23032011:10:15:47

Form 48

Long-term insurance business : Assets not held to match linked liabilities


Category of assets 10 Total long term insurance business assets


Units £000

Unadjusted assets

Economic exposure

Expected income from

assets in column 2

Yield before adjustment

Return on assets in

financial year

1 2 3 4 5

Land and buildings 11

Approved fixed interest securities 12 226299 226299 9482 3.51

Other fixed interest securities 13 319512 319512 18121 5.18

Variable interest securities 14

UK listed equity shares 15

Non-UK listed equity shares 16

Unlisted equity shares 17

Other assets 18 21702 21702 122 0.56

Total 19 567513 567513 27725 4.34

Land and buildings 21 320666 379462 16361 4.31 13.73

Approved fixed interest securities 22 1825857 1825857 84925 2.86 7.91

Other fixed interest securities 23 1687804 1690006 98342 5.23 8.80

Variable interest securities 24 241883 241883 2354 -0.27 9.39

UK listed equity shares 25 0 11256 0 0.00 4.57

Non-UK listed equity shares 26 0 32152 0 0.00 8.54

Unlisted equity shares 27 28459 90186 23 0.02 20.75

Other assets 28 1342555 1176421 5945 0.51 1.41

Total 29 5447224 5447224 207948 2.98 7.46

Overall return on with-profits assets

Post investment costs but pre-tax 31 7.71

Return allocated to non taxable 'asset shares' 32 0.00

Return allocated to taxable 'asset shares' 33 0.00

Assets backing non-profit liabilities and non-profit capital requirements

Assets backing with-profits liabilities and with-profits capital requirements

22

23032011:10:15:47

Form 49

Long-term insurance business : Fixed and variable interest assets


Category of assets 10 Total long term insurance business assets


Units £000

Value of assets Mean term Yield before adjustment

Yield after adjustment

1 2 3 4

11 1262266 7.41 2.85 2.85

Other approved fixed interest securities 21 789890 7.92 3.06 3.01

Other fixed interest securities

AAA/Aaa 31 317180 5.69 4.19 3.98

AA/Aa 32 293191 8.00 4.95 4.51

A/A 33 809996 7.77 5.20 4.59

BBB/Baa 34 457944 6.87 5.76 4.49

BB/Ba 35 24232 9.10 7.09 2.21

B/B 36 6875 4.99 9.44 (2.07)

CCC/Caa 37 6354 5.10 6.23 (22.10)

Other (including unrated) 38 93747 5.41 6.26 (21.81)

Total other fixed interest securities 39 2009519 7.16 5.22 3.09

Approved variable interest securities 41 241883 10.92 (0.27) (0.27)

Other variable interest securities 51

Total (11+21+39+41+51) 61 4303558 7.58 3.82 2.81

UK Government approved fixed interest securities

23

23032011:10:15:47

Form 50

Long-term insurance business : Summary of mathematical reserves




Units £000


Total Previous year

1 2 3 4 5

GrossForm 51 - with-profits 11 80823 36728 10681 128231 136886

Form 51 - non-profit 12 52045 718233 125119 895397 854082

Form 52 13 99915 4664448 73606 4837969 4629057

Form 53 - linked 14 111941 1867180 50558 2029678 1936203

Form 53 - non-linked 15 422 11675 2112 14208 21289

Form 54 - linked 16 17277 235745 253022 250998

Form 54 - non-linked 17 224 4652 4875 3015

Total 18 362645 7538660 262075 8163381 7831531

Reinsurance - externalForm 51 - with-profits 21 84 34 118 128

Form 51 - non-profit 22 21053 329581 11326 361960 339316

Form 52 23 66 21828 1 21895 23400

Form 53 - linked 24 111941 1867180 50558 2029678 1936203

Form 53 - non-linked 25 422 11675 2112 14208 21289

Form 54 - linked 26 100 12646 12746 11902

Form 54 - non-linked 27 799 799 835

Total 28 133665 2243710 64030 2441405 2333075

Reinsurance - intra-groupForm 51 - with-profits 31

Form 51 - non-profit 32

Form 52 33

Form 53 - linked 34

Form 53 - non-linked 35

Form 54 - linked 36


Total 38

Net of reinsuranceForm 51 - with-profits 41 80738 36728 10647 128114 136758

Form 51 - non-profit 42 30993 388652 113793 533437 514766

Form 52 43 99849 4642620 73605 4816073 4605656

Form 53 - linked 44


Form 54 - linked 46 17177 223098 240276 239096

Form 54 - non-linked 47 224 3853 4076 2179

Total 48 228981 5294951 198044 5721976 5498456

24

23032011:10:15:47

Form 51

Long-term insurance business : Valuation summary of non-linked contracts (other than accumulating with-profits contracts)




Units £000

UK Life / Gross

Product code



scheme members

Amount of benefit

Amount of annual office

premiums

Nominal value of units

Discounted value of units Other liabilities

Amount of mathematical

reserves

1 2 3 4 5 6 7 8 9

100 Conventional whole life with-profits OB 2016 46506 1240 23080

120 Conventional endowment with-profits OB savings 1992 16428 555 13146

125 Conventional endowment with-profits OB target cash 2756 88166 1794 37062

165 Conventional deferred annuity with-profits 268 1062 5 1824

205 Miscellaneous conventional with-profits 221 969

210 Additional reserves with-profits OB 4741

300 Regular premium non-profit WL/EA OB 417 5341 82 3473

315 Individual deposit administration non-profit 270 1175 1 4497

325 Level term assurance 29358 2421626 6046 7989

330 Decreasing term assurance 11460 519978 1833 219

390 Deferred annuity non-profit 70 105 89

395 Annuity non-profit (PLA) 1683 4202 34839

435 Miscellaneous non-profit 3814 445159 859 940

25

23032011:10:15:47

Form 51





Units £000

UK Life / Reinsurance ceded external

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

120 Conventional endowment with-profits OB savings 1307 84 84

300 Regular premium non-profit WL/EA OB 5341 82 3473

315 Individual deposit administration non-profit 1175 1 4497

325 Level term assurance 2421626 6046 7989

330 Decreasing term assurance 519978 1833 219



435 Miscellaneous non-profit 445159 859 940

26

23032011:10:15:47

Form 51





Units £000

UK Pension / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

155 Conventional pensions endowment with-profits 285 1201 5 2079

165 Conventional deferred annuity with-profits 198 791 1375


315 Individual deposit administration non-profit 383 2219 11 6187



380 Miscellaneous protection rider 1422071 3927 7327


400 Annuity non-profit (CPA) 26820 30575 461532

411 Group death in service dependant's annuities 7187 339 339

435 Miscellaneous non-profit 1657 164486 358 1658

27

23032011:10:15:47

Form 51





Units £000

UK Pension / Reinsurance ceded external

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

315 Individual deposit administration non-profit 2219 11 6187






411 Group death in service dependant's annuities 7187 339 339

435 Miscellaneous non-profit 164486 358 1658

28

23032011:10:15:47

Form 51





Units £000

Overseas / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

195 Annuity with-profits (PLA) 19 69 907

205 Miscellaneous conventional with-profits 20 1375 13 56






395 Annuity non-profit (PLA) 196 1211 12157

400 Annuity non-profit (CPA) 1154 7372 104499

29

23032011:10:15:47

Form 51





Units £000

Overseas / Reinsurance ceded external

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

205 Miscellaneous conventional with-profits 708 6 34







30

23032011:10:15:47

Form 52

Long-term insurance business : Valuation summary of accumulating with-profits contracts




Units £000

UK Life / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

500 Life UWP single premium 4178 46783 45097 44894 1799 46693

510 Life UWP endowment regular premium - savings 8508 192054 1641 34464 31833 3554 35388

555 Group deposit administration with-profits 2 12 12 12 0 12

575 Miscellaneous UWP 1996 1587 744 1587 866 85 950

610 Additional reserves UWP 16871 16871

31

23032011:10:15:47

Form 52





Units £000


Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

510 Life UWP endowment regular premium - savings 14303 6 6

575 Miscellaneous UWP 119365 60 60 32

23032011:10:15:47

Form 52





Units £000

UK Pension / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

535 Group money purchase pensions UWP 21391 21391 21391 437 21828

545 Individual deposit administration with-profits 74387 1903743 1908404 1998968 36324 2035292


565 DWP National Insurance rebates UWP 123923 990751 990751 938973 29789 968762

570 Income drawdown UWP 2474 75359 75359 75359 75359

571 Trustee investment plan UWP 1 61 61 52 1 53


33

23032011:10:15:47

Form 52





Units £000


Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

535 Group money purchase pensions UWP 21391 21391 21391 437 21828

34

23032011:10:15:47

Form 52





Units £000

Overseas / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

500 Life UWP single premium 309 4677 4677 4657 94 4751

510 Life UWP endowment regular premium - savings 936 28230 740 14883 14710 47 14757

545 Individual deposit administration with-profits 519 7844 571 7844 9672 36 9708

545 Individual deposit administration with-profits Deferred annuity 1120 29488 29488 27090 1304 28394


570 Income drawdown UWP 9 408 408 408 408

575 Miscellaneous UWP 2 30 1 2 1 0 1


35

23032011:10:15:47

Form 52





Units £000


Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

510 Life UWP endowment regular premium - savings 4976 1 1

575 Miscellaneous UWP 30 0 0 36

23032011:10:15:47

Form 53

Long-term insurance business : Valuation summary of property linked contracts




Units £000

UK Life / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

700 Life property linked single premium 1134 44299 44543 44543 23 44567

710 Life property linked whole life regular premium 704 15178 89 15860 15860 30 15890

715 Life property linked endowment regular premium - savings 2295 72529 1293 49981 49981 351 50332

735 Group money purchase pensions property linked 1 10 10 10 10

795 Miscellaneous property linked 377 24411 135 1547 1547 17 1564

37

23032011:10:15:47

Form 53





Units £000


Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

700 Life property linked single premium 44299 44543 44543 23 44567

710 Life property linked whole life regular premium 15178 89 15860 15860 30 15890

715 Life property linked endowment regular premium - savings 72529 1293 49981 49981 351 50332

735 Group money purchase pensions property linked 10 10 10 10

795 Miscellaneous property linked 24411 135 1547 1547 17 1564

38

23032011:10:15:47

Form 53





Units £000

UK Pension / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

725 Individual pensions property linked 82403 980788 980706 980706 2539 983245

735 Group money purchase pensions property linked 60469 436469 436469 436469 9099 445568

745 DWP National Insurance rebates property linked 34438 388876 388876 388876 388876

750 Income drawdown property linked 629 28670 28670 28670 2 28671

755 Trustee investment plan 1 18 18 18 18


39

23032011:10:15:47

Form 53





Units £000


Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

725 Individual pensions property linked 980788 980706 980706 2539 983245


745 DWP National Insurance rebates property linked 388876 388876 388876 388876

750 Income drawdown property linked 28670 28670 28670 2 28671

755 Trustee investment plan 18 18 18 18

795 Miscellaneous property linked 2734 32441 32441 35 32476

40

23032011:10:15:47

Form 53





Units £000

Overseas / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

700 Life property linked single premium 29 473 462 462 36 498

715 Life property linked endowment regular premium - savings 768 22715 122 19434 19434 284 19717

725 Individual pensions property linked 1294 20317 20317 20317 1113 21430

735 Group money purchase pensions property linked 326 6435 6435 6435 461 6896

750 Income drawdown property linked 4 372 372 372 0 372

795 Miscellaneous property linked 195 3539 215 3539 3539 217 3756

41

23032011:10:15:47

Form 53





Units £000


Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

700 Life property linked single premium 473 462 462 36 498

715 Life property linked endowment regular premium - savings 22715 122 19434 19434 284 19717

725 Individual pensions property linked 20317 20317 20317 1113 21430


750 Income drawdown property linked 372 372 372 0 372


42

23032011:10:15:47

Form 54

Long-term insurance business : Valuation summary of index linked contracts




Units £000

UK Life / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

900 Life index linked single premium 7 82 82 82 82

905 Index linked annuity 249 1161 17177 17177 224 17401

910 Miscellaneous index linked 18 0 18 18 18

43

23032011:10:15:47

Form 54





Units £000


Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

900 Life index linked single premium 82 82 82 82

910 Miscellaneous index linked 18 0 18 18 18 44

23032011:10:15:47

Form 54





Units £000

UK Pension / Gross

Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

905 Index linked annuity 3780 13046 231864 231864 3866 235729

910 Miscellaneous index linked 116 3881 3881 3881 786 4667 45

23032011:10:15:47

Form 54





Units £000


Product code



scheme members

Amount of benefit


premiums




reserves

1 2 3 4 5 6 7 8 9

905 Index linked annuity 304 8765 8765 13 8778

910 Miscellaneous index linked 3881 3881 3881 786 4667 46

23032011:10:15:47

Form 56

Long-term insurance business : Index linked business


Total business


Units £000

Value of assets Mean Term

1 2

11 215243 14.01

12 24032 7.63

13

14

15

16

17

18 1000

19

20 240276

AAA/Aaa 31

AA/Aa 32

A/A 33

BBB/Baa 34

BB/Ba 35

B/B 36

CCC/Caa 37

Other (including unrated) 38

39

Credit rating of other fixed interest and other variable interest securities

Total other fixed interest and other variable interest securities

Inflation swaps

Other assets

Variation margin

Total (11 to 19)

Approved fixed interest securities

Other fixed interest securities

Cash and deposits

Equity index derivatives

Analysis of assets

Approved variable interest securities

Other variable interest securities

47

23032011:10:15:47

Form 57Long-term insurance business: Analysis of valuation interest rate (Sheet 1)


Total business ORDINARY LONG TERM


Units £000

Net mathematical reserves

Net valuation interest rate

Gross valuation interest rate

Risk adjusted yield on

matching assets

2 3 4 5

1854 3.60 3.60 4.07

78884 2.88 3.60 4.07

16266 4.19 4.66 4.67

14727 4.66 4.66 4.67

33491 2.88 3.60 4.07

66343 0.88 1.10 1.75

15 3.60 3.60 4.07

15449 0.47 0.52 0.55

1951 0.52 0.52 0.55

36728 3.60 3.60 4.07

388652 4.66 4.66 4.67

3211225 3.60 3.60 4.07

1225892 1.10 1.10 1.75

205502 0.00 0.00 0.69

226951 0.52 0.52 0.55

911 3.50 3.50 4.07

22 2.88 3.60 4.07

9718 3.60 3.60 4.07

113793 4.66 4.66 4.67

Total

OVS Form 51 Non profit - annuities in payment

UK Pens Form 54 Annuity in payment - Index Linked

OVS Form 51 With Profits Policies - annuities in payment

OVS Form 51 With Profits Policies (net)

OVS Form 51 With Profits Policies (gross)

UK Pens Form 51 Non Profit annuity in payment

UK Pens Form 52 With Profits Policies

UK Pens Form 52 With Profits Policies short term business

UK Pens Form 52 With Profits - miscellaneous

UK L&G Form 52 With Profits Policies (gross)

UK L&G Form 54 Annuity in payment - Index Linked post 1991

UK L&G Form 54 Annuity in payment - Index Linked pre 1992

UK Pens Form 51 With Profits Policies

UK L&G Form 51 With Profits Policies - Non-Profit annuities in payment post 1991

UK L&G Form 51 With Profits Policies - Non-Profit annuities in payment pre 1992

UK L&G Form 52 With Profits Policies (net)

UK L&G Form 52 With Profits Policies (net) short term business

Product group

1

UK L&G Form 51 With Profits Policies - deferred annuities

UK L&G Form 51 With Profits Policies - other

48

23032011:10:15:47

Form 57Long-term insurance business: Analysis of valuation interest rate (Sheet 2)


Total business ORDINARY LONG TERM


Units £000

Net mathematical reserves

Net valuation interest rate

Gross valuation interest rate

Risk adjusted yield on

matching assets

2 3 4 5

2845 2.88 3.60 4.07

4404 0.88 1.10 1.75

42765 3.60 3.60 4.07

5039 1.10 1.10 1.75

18575 0.00 0.00 4.07

Total 5722004

OVS Form 52 With Profits Policies (gross)

OVS Form 52 With Profits Policies (gross) short term business

OVS Form 52 With Profits - miscellaneous

Product group

1

OVS Form 52 With Profits Policies (net)

OVS Form 52 With Profits Policies (net) short term business

49

23032011:10:15:47

Form 58

Long-term insurance business : Distribution of surplus




Units £000

Financial year Previous year

1 2

Valuation result

Fund carried forward 11 5722004 5498486

Bonus payments in anticipation of a surplus 12 18946 21725

Transfer to non-technical account 13

Transfer to other funds / parts of funds 14

Subtotal (11 to 14) 15 5740950 5520211

Mathematical reserves 21 5721976 5498456

29 18974 21755

Composition of surplus

Balance brought forward 31

Transfer from non-technical account 32

Transfer from other funds / parts of fund 33

Surplus arising since the last valuation 34 18974 21755

Total 39 18974 21755

Distribution of surplus

Bonus paid in anticipation of a surplus 41 18946 21725

Cash bonuses 42

Reversionary bonuses 43 28 30

Other bonuses 44

Premium reductions 45

Total allocated to policyholders (41 to 45) 46 18974 21755

Net transfer out of fund / part of fund 47

Total distributed surplus (46+47) 48 18974 21755

Surplus carried forward 49

Total (48+49) 59 18974 21755

Percentage of distributed surplus allocated to policyholders

Current year 61 100.00 100.00

Current year - 1 62 100.00 100.00

Current year - 2 63 100.00 100.00

Current year - 3 64 100.00 100.00

Surplus including contingency and other reserves held towards the capital requirements (deficiency) (15-21)

50

23032011:10:15:47

Form 59A

Long-term insurance business : With-profits payouts on maturity (normal retirement)


Original insurer Equitable Life Assurance Society

Date of maturity value / open market option 01 March 2011

Category of with-profits policy Original term (years)

Maturity value / open market option Terminal bonus MVA CWP /

UWPMVA

permitted? Death benefit

1 2 3 4 5 6 7 8

Endowment assurance 10 n/a n/a n/a n/a n/a n/a

Endowment assurance 15 9838 579 n/a CWP N 9838



Regular premium pension 5 n/a n/a n/a n/a n/a n/a

Regular premium pension 10 n/a n/a n/a n/a n/a n/a

Regular premium pension 15 45920 0 n/a UWP N 45920

Regular premium pension 20 71707 0 n/a UWP N 71707

Single premium pension 5 n/a n/a n/a n/a n/a n/a


Single premium pension 15 17814 0 n/a UWP N 17814

Single premium pension 20 26243 0 n/a UWP N 26243

51

23032011:10:15:47

Form 59B

Long-term insurance business : With-profits payouts on surrender


Original insurer Equitable Life Assurance Society

Date of surrender value 01 March 2011

Category of with-profits policyDuration at surrender

(years)Surrender value Terminal bonus MVA CWP /

UWPMVA

permitted? Death benefit

1 2 3 4 5 6 7 8



Endowment assurance 15 8931 0 n/a CWP Y 17742

Endowment assurance 20 15013 0 n/a CWP Y 20968

With-profits bond 2 n/a n/a n/a n/a n/a n/a








52

23032011:10:15:47

Form 60Long-term insurance capital requirement


Global business

Financial year ended 31 December 2010Units £000

LTICR factor

Gross reserves / capital at

risk

Net reserves / capital at

risk

Reinsurance factor

LTICR Financial

year

LTICR Previous

year

1 2 3 4 5 6

Insurance death risk capital component

Life protection reinsurance 11 0.0%

Classes I (other), II and IX 12 0.1%

Classes I (other), II and IX 13 0.15%

Classes I (other), II and IX 14 0.3% 5987776 339617 8982 10210

Classes III, VII and VIII 15 0.3% 25728 0.50 39 58

Total 16 6013505 339617 9020 10267

Insurance health risk and life protection reinsurance capital componentClass IV supplementaryclasses 1 and 2 and life protection reinsurance

21 45 37

Insurance expense risk capital componentLife protection and permanenthealth reinsurance 31 0%

Classes I (other), II and IX 32 1% 5861565 5477652 0.93 54777 52641

Classes III, VII and VIII(investment risk) 33 1% 268684 244352 0.91 2444 2344

Classes III, VII and VIII(expenses fixed 5 yrs +) 34 1% 17500 0.85 149 142

Classes III, VII and VIII(other) 35 25%

Class IV (other) 36 1% 71 0.85 1 1

Class V 37 1%

Class VI 38 1%

Total 39 57369 55128

Insurance market risk capital componentLife protection and permanenthealth reinsurance 41 0%

Classes I (other), II and IX 42 3% 5861565 5477652 0.93 164330 157923

Classes III, VII and VIII(investment risk) 43 3% 268684 244352 0.91 7331 7031

Classes III, VII and VIII(expenses fixed 5 yrs +) 44 0% 17500

Classes III, VII and VIII(other) 45 0% 2015588

Class IV (other) 46 3% 71 0.85 2 2

Class V 47 0%

Class VI 48 3%

Total 49 8163409 5722004 171662 164956

Long term insurance capital requirement 51 238097 230388

0.50

53

54

RETURNS UNDER INSURANCE COMPANIES LEGISLATION THE EQUITABLE LIFE ASSURANCE SOCIETY FINANCIAL YEAR END 31 DECEMBER 2010 SUPPLEMENTARY NOTES TO THE RETURN *0301* Net Admissible Assets and Capital Resources Valuation differences between assets in Form 3 and assets in Forms 13 and 14 are illustrated below: Description Reference £000

Net Admissible Assets

Form 13 Line 89 6,255,013

Mathematical Reserves Form 14 Line 11 (5,722,004)

Other Insurance Liabilities

Form 14 Line 49 (173,809)

Total Capital Resources Form 3 Line 79 359,200 *0310* Positive Valuation Difference The positive valuation difference detailed in line 14 represents the difference between the value of with-profits liabilities as valued in accordance with the FSA Handbook of rules and guidance and the value of with-profits liabilities that the Society has used in its external financial reporting to comply with FRS 27 and the Financial Reporting Council – Board of Actuarial Standards guidance note 45 (section 3.3.3.1 relevant to closed funds). *1308* Aggregate Values The aggregate value of unlisted investments included at lines 41, 42, 46 or 48 which have been valued in accordance with GENPRU rule 1.3 is £4.1m (2009: £17.3m). Part of the Society's assets is invested in property (including property unit trusts) and unlisted equity, amounting to £451m at year end 2010 (2009: £657m). In adverse market conditions, it may not be possible to realise these investments without delay. The aggregate value of investments in collective investment schemes in line 43 that are not schemes falling within the UCITS Directive are £68.5m (2009: £68.9m). *1309* Aggregate Value of Hybrid Securities The aggregate value of hybrid securities included at lines 46 or 48 is £109.2m (2009: £125.6m). *1310* Amounts Receivable and Payable Amounts due to and from any one person have been offset where appropriate in accordance with generally accepted accounting principles.

55

*1312* Large Counterparty Exposures There were no exposures to counterparties at the end of the financial year exceeding 5% of the Society’s base capital resources requirement and long-term insurance liabilities, excluding property linked liabilities and net of reinsurance ceded. *1318* Other asset adjustments The Society has adopted 'FRS26 Financial Instruments: Measurement' in the preparation of its external financial reporting. As a result, the reinsurers' share of technical provisions reported on Form 13 differs from that recorded in the Society's Annual Statutory Report and Accounts. The difference, £13.9m (2009: £20.7m), is recorded on Line 101 of Form 13. *1319* Investment Guidelines, Maximum Counterparty Exposure The maximum amount that the investment manager is permitted to expose the funds of the Society to any one Counterparty is controlled by the following limits for individual entities or groups including exposure across significant asset classes as follows; Maximum investment in any individual entity or group % of total

fixed interest Supranational and Government guaranteed “AAA” rated 5.00% Other “AAA” 2.00% “AA” rated 2.00% “A” rated 1.00% “BBB” rated 0.50% All new purchases should be rated as BBB- or above at the time of purchase. Certain specified securities (known as 'grandfathered' securities) are excluded from these limits. These are securities which were historically held by the Society, which will be sold down when market conditions are considered favourable. The Society has no appetite to actively increase it's exposure to illiquid securities. As such, unless it receives prior approval from the Society, the investment manager is not permitted to purchase securities which it deems to be illiquid at the time of purchase. Additionally, as a further step, the maximum of the outstanding amount of any one issue that may be held shall be 5%. For Medium Term Notes, Asset Backed Securities and Mortgage-backed Securities issues, such percentages shall be measured against the issue in the aggregate rather than against the individual tranches of such issue. For any individual group or entity that is classified as Supranational or Government Guaranteed by the investment manager and is rated "AAA", the maximum of the outstanding amount of any one issue that may be held shall be 15%. *1401* Provision for Adverse Changes Investment guidelines for the use of conventional derivatives operated throughout the year and did not permit the writing of uncovered call options. Consequently, no provision for adverse changes is considered necessary.

56

*1402* Charges, Contingent Liabilities, Guarantees, Indemnities and Contractual Commitments No liabilities included in Form 14 are secured by a charge. There exist some uncertainties that, if they were to materialise, could adversely impact on the financial position of the Society. Over the last few years, these uncertainties have been addressed to a very significant extent, and the range of possible outcomes has continued to narrow. The major development during 2010 was Government’s announcement of a payment scheme in response to the Parliamentary Ombudsman’s report into the regulatory handling of the Society. In contrast, there was little change in respect of the 91 claims against the Society in district courts across Germany where the cases have all been defended successfully so far. Also outstanding are investigations initiated by the Accountancy and Actuarial Disciplinary Board (“AADB”). The AADB are investigating an accountant and an actuary in respect of the provision of information for use by the Financial Reporting Review Panel relating to the financial statements of Equitable Life in 1999. The actuary is also being investigated by the AADB in relation to audits of the 1997, 1998 and 1999 financial statements. The AADB is also investigating the conduct of certain actuaries in relation to the provision of advice by, or on behalf of, the Government Actuary’s Department to prudential regulators. It is not considered that the uncertainties described above represent a significant financial threat, and it is considered that the risk of any material new issues arising for the Society appears limited. The Board continues to closely monitor the contractual commitments the Society has in respect of the two pension schemes for which HBOS is principal employer. There remains a possibility that it may be necessary for a more conservative basis to be adopted in future in calculating the Society’s obligations. Additionally, there remains a risk to the Society that investment conditions change or policyholders defer their retirement, which may materially alter the calculations of technical provisions for policy liabilities. The process of transferring administration services back to the Society brings with it a range of operational risks, which makes the estimation of future costs more uncertain, and will require careful management. The Society has arrangements in place for identifying, monitoring and managing these risks. The financial position of the Society has been projected under a range of economic scenarios, in order to assess how robust it remains in adverse conditions. The projections make allowance for capital distribution. The Board has also considered the level of contingent liabilities in its analysis of the Society’s financial position and considers that these have reduced in significance in recent years. Based on these analyses, the Board is confident of its ability to manage adverse scenarios that may arise, recognising that in some scenarios very strong action to reduce policyholder payouts would be required. The Board has assessed these uncertainties using the latest available information and has concluded that it is appropriate to prepare this return on a going concern basis. *1405* Reconciliation of Total Liabilities to Financial Statements The value in line 74 represents the difference between the value of liabilities as valued in accordance with FSA Handbook of Rules and Guidance and the value of liabilities detailed in external financial reporting to comply with FRS27 and the Financial Reporting Council - Board of Actuarial Standards guidance note 45 (section 3.3.3.1 relevant to closed funds).

57

*1701* Treatment of the variation margin The aggregate excess variation margin received in respect of derivatives in 2010 was £0.8m (2009: £3.0). The variation margin is included within line 54 of Form 13. The liability to repay the excess variation margin at the end of 2010 is reflected in line 54 of Form 13. *4002* Other Income Other Income is comprised of the following: 2010 2009 £'000 £'000 Stock Lending commission 526 640 Investment management fee rebate 750 1,008 Other Income 763 1,227 2,039 2,875 *4005* Income and Expenditure Translation Foreign currency values for income and expenditure have been translated at rates of exchange ruling at the time of the respective transactions. *4008* Management Services During 2010, substantially all management services for The Equitable Life Assurance Society have been provided by Lloyds Banking Group. Investment services transferred from Insight Investment Management (Global) Limited to BlackRock Investment Management (UK) Limited in October 2010. Property administration services have remained with Invista Real Estate Investment Management throughout 2010. *4010* Investment Income from Linked Assets Included within line 12 is £4.3m of income earned on linked assets. *4803* Assumed redemption dates For callable securities with a range of redemption (or option) dates we take advice from our investment managers as to the most likely date of redemption. Remaining securities are assumed to be redeemed at the earliest or latest redemption (or option) date, whichever gives the lower yield. The value of 'approved fixed interest securities' and 'other fixed interest securities' with variable redemption (or option) dates are £127,601 and £270,017,156 respectively. Irredeemable assets with no first option date are assumed to have a redemption date in 2049. Property and equity are assumed not to be redeemed. *4806* Assets used to calculate the investment returns All assets in column 2 have been used to calculate the investment returns in column 5.

58

*4807* Return allocated to Asset Shares The return allocated to asset shares is an increase of 0.0% for pension contracts and 0.0% for life contracts. This is the return allocated by the Board, after consideration of all risks, reserving and capital matters. *4901* Rating agencies The credit rating used is the lower of Moody's, Standard & Poor's and Fitch (if available). In the absence of such ratings, one is supplied by BlackRock Investment Management (UK) Limited; the Society's third party investment manager who is not connected with the Society. Any fixed interest elements of collective investment schemes in column 1 allocated to column 2 of Form 48 are classified as unrated. *4902* Negative redemption yield The allowance made for risk of default of income and redemption payments on fixed interest corporate bonds has led to negative redemption yields for assets in ratings categories "B/B", "CCC/Caa" and "Other (including unrated)". The negative yield on approved variable interest securities is due to negative real yields at short durations. *5102* Policy count The benefits under code 380 are attributable to life cover and death in service benefits attached to individual and group policies in codes 545, 555, 725 and 735. The policy count has been set to zero to avoid double counting. *5201* Group scheme member count There are 42 Final Salary schemes included in code 555 where benefits are not required at member level. Column 3 has been set to zero for these policies. *5202* Group scheme member count There are three schemes in the figures for code 555 where the number of members has been approximated to 100. These schemes are administered by a third party. *5203* Policy count Where a policy has both with-profits and unit linked benefits the policy count has been entered on Form 53. *5301* Group scheme member count There are 28 Final Salary schemes included in code 735 where benefits are not required at member level. Column 3 has been set to zero for these policies.

59

*5302* Policy count Where a policy has both with-profits and unit linked benefits the policy count has been entered on Form 53. *5303* Miscellaneous reserves The reserves of £37.796m under code 795 are attributable to property linked immediate annuities (£33.501m), property linked deferred annuities (£3.756m), property linked health products (£0.482m) and Building Society linked endowment assurance (£0.057m). *5702* Section 148 Waiver - Determination of Rates of Interest on Fixed Interest Securities The Financial Services Authority, on the application of the firm, made a direction under section 148 of the Act in December 2007. The effect of the direction is to modify INSPRU 3.1.35 to require the firm to calculate the yield on certain categories of fixed interest security on an aggregate basis. *5703* Classification of Product Groups The product groups set out in Form 57 reflect the changes in determining the interest rate for various classes of with profit contracts as noted in appendix 9.4. *5901* Market Value Adjustment For CWP contracts no explicit MVA is applied as part of the surrender basis. Surrender values are set so that they are comparable to UWP policies on surrender. *6001* Class IV business and supplementary accident and sickness insurance Forms 11 and 12 are not completed, as the gross annual office premiums for the relevant classes are less than 1% of the total gross annual office premiums. The figure in line 21 of Form 60 exceeds the amount that would be obtained had Forms 11 and 12 been completed and is calculated as follows: These classes are 100% reinsured and closed to new business. Premiums are payable monthly and so the premiums earned and receivable are essentially the same. The premiums to the supplementary accident and sickness insurance were £37,852 and the premiums to Class IV business were £853,997. The 'premiums amount' is therefore 0.18 x (£37,852 + £853,997 / 3) x 0.5 = £29,027 Claims in the last 12 months were nil for the supplementary accident and sickness insurance and £1,042,507 for the Class IV business. The 'claims amount' is therefore 0.26 x (0 + £1,042,507 / 3) x 0.5 = £45,175. Therefore, 'claims amount' of £45,175 is used.


REGULATORY VALUATION REPORT

60

Introduction 1. (1) The date of the valuation was 31 December 2010.

(2) The date of the previous valuation was 31 December 2009.

(3) The date of the interim valuation was 30 June 2010. Product range 2. There were no significant changes to the Society's product range. The Society is closed to new business

except by increment.

Discretionary charges and benefits

3. (1) A market value reduction (or equivalent) was applied throughout 2010 for non-contractual withdrawals from all with-profits contracts.

(2) There were no changes to the basis for setting premiums on reviewable protection policies during

the year. (3) The interest rate added to non-profit deposit administration policies varied depending on the date

the policy commenced. This rate is fixed until benefits are taken. (4) There were no changes to service charges on linked policies. (5) There were no changes to benefit charges on linked policies. (6) There were no changes to the method and basis for management charges on unit-linked or

accumulating with-profits policies. (7) – (10) All linked liabilities are wholly reassured with Halifax Life and Clerical Medical Managed Funds

Limited. Linked fund prices mirror those set by the reassurer. Valuation Basis 4. The bases (and methodology) are set out in the following paragraphs.

(1) General

The main method used was that of a gross premium valuation with specific reserves for the future expenses of running the business. Accumulating with-profits policies For accumulating with-profits policies in the Basic Life Assurance and General Annuity and Pension Business Funds which were grouped by calendar year of vesting date, it has been assumed that the vesting date falls in the middle of the group year.



61

The liability was calculated by discounting the guaranteed benefits (including any declared and attaching bonus) with an allowance for guaranteed investment return (GIR) where appropriate. Policies effected before 1 July 1996 have a GIR of 3.5% p.a. (with the exception of some Retirement Annuity policies effected prior to 1 October 1975 that have a GIR of 2.5% p.a.) and policies effected on or after 1 July 1996 have a GIR of 0.0% p.a. For policies with flexible retirement dates, the dates at which retirement benefits are assumed to be taken are based on an amounts analysis of recent Society experience and are set out in section 4 (8). Certain pension policies also contain a guaranteed minimum level of pension. The liability for these policies was set to the higher of the discounted cash fund and declared bonus cash fund or the discounted value of the guaranteed minimum pension at retirement. The reserves were calculated using the same mortality and expense basis and methodology used to value annuities in payment but with interest appropriate to pre retirement pension policies. This value was then discounted to the valuation date using interest and mortality for pre retirement pension policies. For with-profits managed pension policies, school fee trust plans and with-profits personal pension trustee income drawdown policies, the current full value of the guaranteed fund and attaching declared bonus fund was reserved. The attributable expense reserves are based on the ongoing costs directly relating to administration derived from the current expected future expenses of the Society. These will be covered by the policy fees from gross policies before their assumed benefit payment dates. None of these expenses are therefore assumed to be covered by policy fees on policies past their assumed benefit payment date, which includes all managed pension contracts. These expenses are assumed to increase in line with inflation. For policies with flexible retirement dates the dates at which retirement benefits are assumed to be taken are based on a lives analysis of recent Society experience and are set out in section 4 (8). Annuities Life immediate annuities were valued individually assuming payments are continuous. Joint-life and last survivor annuities were valued individually by equivalent factors based on the ages of the respective lives and the incidence of payments. Outstanding guaranteed periods and escalation in payment are also allowed for in the valuation where applicable. Temporary immediate annuities were valued as annuities certain. For with-profits immediate annuities the liability was calculated by valuing the guaranteed payments and attaching bonus payments. Conventional Business For the main classes of annual premium business the liability was calculated by deducting from the value of the guaranteed benefits, including vested bonus additions, the value of office premiums receivable after deducting from these a provision for future expenses. Whole life assurances were valued individually and the factors for valuing sums assured and bonuses were increased by one half-year's interest to allow for immediate payment of claims.



62

Endowment assurances were grouped according to the calendar year of maturity and attained age. An allowance was made for immediate payment of claims. Level temporary assurances and decreasing temporary assurances (other than those tabulated below) were valued individually. An allowance was made for the immediate payment of claims.

Assurances upon sub-standard lives were valued as though they were upon normal lives assured at the tabular rates of premium and the valuation liability was increased by the amount of one year's extra premium. Surrender Value Reserve For accumulating with-profits business, an additional reserve for the amount of a cash payment secured by the exercise of an option to surrender the policy has been calculated in accordance with INSPRU 1.2.71R. This is calculated by comparing the “normal” policy reserve obtained using the gross premium valuation method applied to the guaranteed benefits for accumulating with-profits policies as described earlier in section 4 (1) plus the allowance for future expenses as described in paragraph 4 (6), with the lower of: • the current surrender value that could reasonably be expected to be paid having regard to the

representations made to policyholders, and • that value disregarding discretionary adjustments (i.e. disregarding both the financial

adjustment and final bonus beyond the current guaranteed value). Where the “normal” reserve is higher, no additional reserve is held. Where it is lower, the difference is held within this additional reserve. The bases to be used in the event of surrender or transfer are not guaranteed, and the primary objective when setting the basis is to protect the interests of the continuing with-profits policyholders. In the event of a significant level of policy discontinuances, the Society reserves the right to reduce surrender payments. If it were required in order to protect solvency, surrender payouts could be made equal to the discounted value of the guaranteed benefits. An additional reserve is also calculated for conventional with-profits business, in a similar way to that described above. Unit Linked The unit liability under all linked contracts was valued by taking the number of units deemed to attach to policies multiplied by the valuation price per unit. The valuation prices match those set by Halifax Life for liabilities reinsured through Halifax Life. The valuation prices match those set by Clerical Medical Managed Funds Limited (CMMF) for liabilities reinsured through CMMF. The business is fully reinsured. The unit liability under all contracts linked directly to the Halifax UK Growth OEIC was valued by taking the number of units deemed to attach to policies multiplied by the mid price of Halifax UK Growth OEIC shares on the valuation date. The non-unit liability was calculated using a per policy projected cash flow methodology. The only non-linked liabilities are in respect of expenses and mortality and are described in section 4 (4) and 4 (6) below.



63

Other Business For with-profits Flexible Protection Plans and German Deferred Annuity policies, which were grouped by calendar year of maturity date or annuity vesting date as appropriate, it has been assumed that the maturity or vesting date falls in the middle of the group year. The liability was calculated by discounting the guaranteed fund and attaching bonuses where appropriate and adding the amount of the current month's mortality charge deduction. With-profits Bonds, with-profits Personal Investment Plans, with-profits Personal Pension Trustee Investment policies and with-profits International Investment Plans were grouped by calendar year of the next option date on which full withdrawal can be made on guaranteed terms. For this purpose the guaranteed fund and bonuses attaching to different single premiums paid to the policy were included in the appropriate group years. It has been assumed that the next option date falls in the middle of the group year. The liability was calculated by discounting the guaranteed fund and attaching bonuses. Recurrent single premium death-in-service group pension arrangements were valued using one year’s premium.

(2) Interest rates used are set out in the following table:

With-profits business classes are split into short- and long-term business in accordance with the average remaining term of the class. Product group Rate at

31 December 2010 Rate at 31 December 2009

UK non-profit annuities (Pensions) 4.66% 5.00% UK non-profit annuities pre-1992 (Life) 4.66% 5.00% UK non-profit annuities post-1991 (Life) 4.19% 4.50% Overseas non-profit annuities (Pensions) 4.66% 5.00% German with-profits annuities (Life) 3.50% 3.50% UK index-linked annuities pre-1992 (Life) 0.52% 0.54% UK index-linked annuities post-1991 (Life) 0.47% 0.49% UK index-linked annuities (Pensions) 0.52% 0.54% Long-term pension contracts 3.60% 4.00% Short-term pension contracts 1.10% 4.00% UK with-profits endowments and whole life 2.88% 3.20% UK term assurance 2.78% 3.10% UK with-profits long-term policies (Flexible Protection Plan, Regular Savings Plan, Major Medical Cash Plan, Critical Illness Plan)

2.88% 3.20%

UK with-profits short-term policies (With-Profits Bond, Personal Investment Plan)

0.88% 3.20%

Overseas with-profits policies (Life) 2.88% 3.20% UK non-profit annuities in deferment (Pensions)

3.50% 3.90%



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(3) Yields on assets are reduced to allow for risk as follows:- Equity shares are assumed to have no yield. Property (and property unit trust) yields are capped at 6.5%. The rates of interest on fixed interest securities have been determined using an aggregate yield basis, i.e. by calculating the rate of interest as the rate which equates the aggregate market value to the discounted value of the aggregate cash flows. The fixed interest portfolio (excluding convertible fixed interest securities) has been separated into two segments of securities which have like attributes (being the categories on Forms 48 and 49), i.e.: • approved fixed interest securities, and • other fixed interest securities. Yields on approved fixed interest assets with credit ratings of "exceptionally or extremely strong" or "very strong" are not reduced for risk. At the 31 December 2007 valuation, all other fixed interest assets had their yield reduced by reference to historic default rates. These were based on 20 years of Moody's data and represented the mean default rate plus two standard deviations plus a 40% margin for prudence. These default rates were increased by a factor of 140% for the valuation at 31 December 2009. This allowance for default was set with regard to the Bank of England's analysis of the decomposition of corporate bond spreads, market assessment of default risk in the Credit Default Swap market, and the pessimistic view from the range of expected default outcomes presented by the Society's investment managers. After consideration of the most recent market data available and in absence of any actual defaults on the Society's portfolio, the future default allowance for A and BBB rated bonds has been reduced at the 2010 year end. The allowance for defaults ascribes 38% of the credit spread seen on the Society's corporate bond portfolio to be due to default risk. The overall strength broadly equates to the mean default rate plus two standard deviations. The assumptions used to reduce the yield are shown in the following table:

Credit Rating Yield Reduction at 31 December 2010

Yield Reduction at 31 December 2009

AAA 0.20% 0.20% AA+ 0.25% 0.25% AA 0.35% 0.35% AA- 0.47% 0.47% A+ 0.48% 0.64% A 0.50% 0.88% A- 0.67% 1.20%

BBB+ 0.83% 1.63% BBB 1.00% 2.23% BBB- 3.04% 3.04% BB+ 4.15% 4.15% BB 5.65% 5.65% BB- 7.71% 7.71% B+ 10.51% 10.51% B 14.34% 14.34% B- 19.55% 19.55%

CCC 26.67% 26.67% CC 26.67% 26.67%



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Non-rated stocks are treated as having rating CC. For stocks with variable redemption dates we have taken the view of investment advisors and set the redemption date to the expected redemption date and taken into account any anticipated changes to income until this date. Where our investment advisors have no view as to the likely redemption date and where the income yield was greater than the gross redemption yield, the stocks were assumed to redeem at the earliest date.

(4) The mortality rates are summarised in the following tables:

(i) Immediate Annuities

Complete expectation of life

Complete expectation of life

Product Group

Table at 31 December 2010 in possession 65 75

Table at 31 December 2009 in possession 65 75

UK non-profit annuities (Pensions)

87.5%PNMA00mc U=2013 80.0%PNFA00mc U=2013

Male 24.6 Female 27.9


87.5%PNMA00mc U=2012 80.0%PNFA00mc U=2012



UK non-profit annuities (Life)

72.5%IML00ult U=2010 77.5%IFL00ult U=2010



72.5%IML00ult U=2009 77.5%IFL00ult U=2009



Overseas with-profits annuities (Life)

87.5%PNMA00mc U=2013 80.0%PNFA00mc U=2013



87.5%PNMA00mc U=2012 80.0%PNFA00mc U=2012



Overseas non-profit annuities (Pensions)

87.5%PNMA00mc U=2013 80.0%PNFA00mc U=2013



87.5%PNMA00mc U=2012 80.0%PNFA00mc U=2012



UK unit- linked annuities (Pensions)

80.0%PNMA00mc U=2013 65.0%PNFA00mc U=2013



80.0%PNMA00mc U=2012 65.0%PNFA00mc U=2012



UK index- linked annuities (Life)

72.5%IML00ult U=2010 77.5%IFL00ult U=2010



72.5%IML00ult U=2009 77.5%IFL00ult U=2009



UK index- linked annuities (Pensions)

87.5%PNMA00mc U=2013 80.0%PNFA00mc U=2013



87.5%PNMA00mc U=2012 80.0%PNFA00mc U=2012



The allowance for future mortality improvements for PNMA/PNFA00 is based on the implied future mortality improvements in the PMA/PFA 92 MC tables subject to a minimum improvement of 1.5% p.a.. The allowance for future mortality improvements for IML/IFL00ult is based on the implied future mortality improvements in the IML/IFL 92 tables subject to a minimum improvement of 1.5% p.a..



66

ii) Deferred annuities

In deferment

Product group Table at 31 December 2010 in deferment

Table at 31 December 2009 in deferment

UK non-profit deferred annuities (Pensions)

90.0%AMC00ult 97.5%AFC00ult


German with-profits deferred annuities (Life)



In payment

Complete expectation of life at age 65 for current age

Complete expectation of life at age 65 for current age

Product Group

Table at 31 December 2010

45 55

Table at 31 December 2009

45 55 UK non-profit deferred annuities (Pensions)

87.5%PNMA00mc U=2013 80.0%PNFA00mc U=2013



87.5%PNMA00mc U=2012 80.0%PNFA00mc U=2012



German with- profits deferred annuities (Life)

87.5%PNMA00mc U=2013 80.0%PNFA00mc U=2013



87.5%PNMA00mc U=2012 80.0%PNFA00mc U=2012



iii) Linked business

For Managed Pensions no mortality was assumed. Otherwise, AM80 ultimate mortality

was assumed with a 2-year deduction from age for male lives and a 6-year deduction from age for female lives.

iv) Other products Product group Table at

31 December 2010 Table at 31 December 2009

All pension contracts 90.0%AMC00ult 97.5%AFC00 ult

90.0%AMC00ult 97.5%AFC00 ult

UK endowments and whole life 90.0%AMC00ult 97.5%AFC00 ult


UK term assurance 72.5% TMC00 77.5% TFC00

72.5% TMC00 77.5% TFC00

UK with-profits policies (Life) 90.0%AMC00ult 97.5%AFC00 ult


Overseas with- profits policies (Life) 90.0%AMC00ult 97.5%AFC00 ult




67

(5) There are no significant morbidity risks.

(6) The attributable expense basis is summarised in the following tables. The basis reflects the costs under insourcing of administration as described in section 4 (1). The 2009 figures reflect the charges under the agreement signed with HCL. There are no Zillmer adjustments. For net business it is assumed that the tax relief will be at 20%. Accumulating with-profits business For accumulating with-profits business, the following current levels of administrative expenses (excluding fund management) were assumed. It was further assumed that these expenses would increase at a rate of 3.4% per annum (2009 - 5.1% per annum).

Product code

Product name Year ending 31 December 2010

Year ending 31 December

2009 120 CWP savings endowment £250.78 per benefit £11.69 per benefit 125 CWP target cash endowment £250.78 per benefit £11.69 per benefit 500 UWP Bond £19.77 per benefit £11.69 per benefit 510 UWP savings endowment £19.77 per benefit £11.69 per benefit 535 UWP group regular premium

pension £3.12 per benefit £8 per benefit

555 Group deposit administration with-profits

£3.12 per benefit £8 per benefit

545 Individual deposit administration with-profits

£16.10 per benefit £6.68 per benefit

Separate allowance was made for fund management expenses using a loading of 1.40 per mille (2009 – 1.20 per mille) of the basic benefit including declared bonuses. These expenses were assumed to escalate in line with the valuation interest rates, i.e. a net rate of discount of 0%. For life assurance and general annuity business the appropriate per policy expenses and fund management assumptions shown above were netted down for tax at a rate of 20%. No other explicit reserve was made for expenses on policies where premiums have ceased, no future premiums are payable or the method of valuation does not take credit for future premiums as an asset. Conventional business Product code


Year ending 31 December 2009

120 CWP savings endowment

3% of office premium 3% of office premium

125 CWP target cash endowment

3% of office premium 3% of office premium

155/165 CWP pensions 4% of office premium 4% of office premium 325/330 Term assurance 4.5% of office premium 4.5% of office premium

In addition, an annual loading of £3 (2009 – £3) was reserved per individual policy.



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Annuities For annuities in payment, the following current levels of administrative expenses were assumed. It was further assumed that the per benefit expenses would increase at a rate of 3.4% per annum (2009 – 5.1%). Product code

Product name



Per benefit Fund management Per benefit Fund management 400 Annuity £3.13 1.1 per mille £4.46 0.6 per mille

Linked business Future administration charges for unit-linked and “FTSE 100” linked policies are paid by Clerical Medical Managed Funds Limited as contractually agreed. In Forms 53 and 54 we have treated reserves set up in respect of these charges as reassured liabilities. Difference between these charges and future expenses are reserved for separately in the unattributable expense reserve. For UK regular premium business no future premiums have been assumed in the calculation of the non-unit-reserve. Product code



700 Bond £7.51 per policy £11.96 per policy 715 Savings endowment £7.51 per policy £11.96 per policy 725 Regular premium pension £11.41 per policy £14.52 per policy 735 Group regular

premium pension £13.88 per member £17.68 per member

For Non-UK regular premium business no future premiums have been assumed in the calculation of the non-unit-reserve. Product code Product

name Year ending 31 December 2010


700 Bond £64.42 per policy £102.48 per policy 715 Savings

endowment £64.42 per policy £102.48 per policy

725 Regular premium pension

£96.77 per policy £123.17 per policy

735 Group regular premium pension

£119.02 per member £151.48 per member

There is also a 15bps (2009 – 15bps) expense charge p.a. to allow for investment expenses and overheads.



69

(6) The unit growth rates (before management charges) and expense inflation rates are:

Year ending 31 December 2010 Year ending 31 December 2009

Unit growth rate Expense inflation Unit growth rate Expense inflation

4.0% 4.9% 4.6% 5.1%

(7) The method of valuation described above makes an allowance for any future guaranteed investment return described in section 4 (1) – Accumulating With-profits Policies. The assumption for future discretionary bonus for with-profits contracts is zero for all classes.

(8) The persistency assumptions are as follows:

There are no non-contractual withdrawals assumed. For pension policies where there is a range of contractual retirement dates. Recent Society experience for lives and benefits has been used to derive the persistency assumptions for expenses and policy values respectively. Experience has been split into two categories: policies that are yet to reach and those already past the Earliest Contractual Date (ECD) shown in the table below. The assumed retirement ages in relation to ECD are shown in the following tables (where NRA = Normal Retirement Age): Assumption for expenses for policies yet to reach ECD: Product Type Year ending 31

December 2010 Year ending 31 December 2009

Original ECD

Group Pensions 2.25 years before ECD

3.00 years before ECD

NRA

Individual (executive) Pensions At ECD 0.75 years before

ECD NRA

Personal Pensions (non-DSS)

8.00 years after ECD

6.75 years after ECD 55

Personal Pensions (DSS) 4.50 years after ECD


Retirement Annuities 5.00 years after ECD




70

Assumption for expenses for policies already past ECD: Product Type Year ending 31


Original ECD

Group Pensions 11.00 years after ECD

9.75 years after ECD NRA

Individual (executive) Pensions






Personal Pensions (DSS) 7.00 years after ECD




Assumption for benefits for policies yet to reach ECD: Product Type Year ending 31


Original ECD

Group Pensions 2.25 years before ECD

3.25 years before ECD NRA

Individual (executive) Pensions At ECD 1.00 years before

ECD NRA




Personal Pensions (DSS)





Assumption for benefits for policies already past ECD: Product Type Year ending 31


Original ECD

Group Pensions 9.25 years after ECD


Individual (executive) Pensions













71

Group final salary benefits are assumed to terminate in 1.5 years.

Income drawdown policies are assumed to terminate immediately.

For group money purchase schemes, where individual member data is not required, the term to retirement is assumed to be the same as all other group money purchase schemes.

For life policies where there is a range of potential contractual termination dates, the following assumptions are used: Personal Investment Plans: next contractual withdrawal date. Bonds: next contractual withdrawal date. School Fee Trust Plans are assumed to terminate immediately.

(9) There are no other material assumptions stated elsewhere. (10) The Society does hold derivative contracts but none were used to justify the valuation rate of

interest.

(11) There have been no changes in methodology as a result of changes to INSPRU. Options and guarantees 5. (1) Guaranteed annuity rate options

(a) The method used is a deterministic one. The basic reserve represents the value of the cash benefit. The extra reserve for the guarantee is calculated as (Guaranteed Annuity Rate / Valuation Annuity rate -1) x basic reserve (subject to a minimum of zero) with an additional contingency margin of 70%.



72

(b)

Product name Deferred annuity

Accumulating class Endowments

German Deferred Annuity

Basic reserve £1.7m £5.5m £2.3m £6.4m Spread of outstanding durations

0 to 20 years 0 to 10 years 0 to 23 years 0 to 40 years

Guarantee reserve £1.6m £5.1m £2.1m £1.9m Guaranteed annuity rate (male aged 65) 9.92% 9.92% 9.92% 6.94%

Increments permissible? No Yes No Yes

Form of annuity

Half yearly, in arrear, level, single life, no guarantee period



Monthly, in advance, level, single life, no guarantee period

Retirement ages 60 to 70 60 to 70 60 to 70 50 to 75

(2) Options which guarantee surrender values at specified dates are automatically valued as a result of the persistency assumption set out in paragraph 4(8).

(3) Guaranteed Insurability options

(a) Under some UK bonds the death benefit is 105% or 110% of the fund value. Due to the low level of new premiums, the low level of sum assured at risk and the prudent persistency assumption no extra reserve is held.

All Flexible Protection Plans issued on normal terms carry the option to effect further policies without evidence of health. Broadly, the option allows the life cover to be increased at intervals, by effecting further policies, in line with increases in the Retail Prices Index. Due to the low level of increases permitted and the reviewable and prudent nature of the mortality charges, no extra reserve is held.

Prior to 15 August 1986 an option to effect further policies without evidence of health could be included on the Society’s standard whole life and endowment assurances in the life fund. Due to the non-guaranteed and prudent premium basis for new policies, no extra reserve is held. Mortgage protection policies and endowment assurances with guaranteed minimum death benefit, where used as collateral security in respect of a house purchase loan carry the option to effect further policies or increase the death benefit on existing policies when an additional loan is effected or the terms of a loan are changed. Due to the size of this policy class, the conditional nature of the option and the prudent, non-guaranteed new policy premium bases, no extra reserve is held.

(b) Individually and in aggregate the sums assured of the policy classes listed above do not

exceed £1bn.



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(4) Guaranteed minimum pensions and guaranteed interest rates are valued as described in paragraph 4(1).

Expense reserves 6. (1) The aggregate amount of expense loadings expected to arise during the 12 months following the

valuation date from explicit reserves made is £74.4m.

Homogeneous risk group

Implicit allowances

(£m)

Explicit allowances

(investment)(£m)

Explicit allowances

(maintenance)(£m)

Non-attributable expenses

(maintenance) (£m)

Non-attributable expenses

(exceptional) (£m)

Total

(£m)UK Life n/a 0.1 1.6 0.8 1.7 4.2 UK Pensions n/a 5.9 4.9 19.9 37.2 67.9 Overseas n/a 0.1 0.4 0.7 1.5 2.7 Total n/a 6.1 6.9 21.4 40.4 74.8

The non-attributable expense is made up of £21.4m maintenance expenses and £40.4m exceptional expenses. Total maintenance expenses in 2011 are £34.4m.

(2) There are no implicit allowances. All expense assumptions and reserves are calculated explicitly.

(3) The difference of the amount of maintenance expenses from the maintenance expenses in 2010

shown in line 14 on Form 43 is due to increases in the current expected future expenses.

(4) The Society is closed to new business.

(5) The reserving basis already incorporates factors reflecting the closed nature of the fund.

(6) An exceptional expense reserve of £103.8m covers short term exceptional costs and is attributed to homogeneous risks groups in proportion to overall reserves. These costs are principally strategic business projects and pension funding commitments. A non-attributable regular expense reserve of £483.2m covers the regular expenses that exceed the explicit per policy expense allowance plus a margin for prudence and is split between homogeneous risks groups in proportion to overall reserves. This provision is calculated as the net present value of the projected budget which reduces at a rate related to the projected run off of the business.

Mismatching reserves 7. (1) There is just one with-profits fund which contains all the non-profit, index-linked and non-

sterling liabilities. The total mathematical reserves (other than liabilities for property-linked benefits), analysed by reference to the currencies in which the liabilities are expressed to be payable, together with the total value of the assets, analysed by reference to currency, which match the total liabilities are tabulated below:

Currency Mathematical Reserves

(£000,000) Assets

(£000,000) Sterling 5,554 5,965 Euro 166 190 US Dollar 2 100



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The Society holds a dollar hedge with exposure of £87m at the valuation date to mitigate the dollar mismatch.

(2) Not applicable.

(3) No mismatching reserve is required.

(4) Not applicable.

(5) Not applicable.

(6) Not applicable.

(7) No additional reserves are required arising from the tests on assets in INSPRU 1.1.34R.

The cash flows emerging from benefits and expenses from non-profit, index-linked and with-profits in force business have been considered. Index linked assets can be allocated to expenses such that the cash flows emerging from those assets match those from the expected expenses. Fixed interest assets can be allocated to non-profit business such that the cash flows emerging from those assets match closely those from the non-profit in force benefits. Index linked assets and cash can be allocated to index linked business such that the cash flows emerging from those assets match broadly those from the index-linked in force benefits. The remaining assets are allocated to with-profits business. Taking into account the nature and the term of this business, it is envisaged that there will be no future liquidity problems in a wide rage of investment scenarios. A significant proportion of the fund is held in British Government securities to allow for uncertainties of cash flows given the flexibility of the policies.

Other special reserves 8. (1) UK Accumulating With-Profits Pensions - Additional Reserves UWP

This reserve of £650.1m represents unattributable expenses, exceptional expenses, investment expense on unallocated funds and the potential cost of maintaining the current with-profits non-contractual termination terms. Descriptions of each of the principal elements of this reserve are detailed below.

Where appropriate, the assumptions used to determine this reserve are consistent with those assumptions defined in earlier section of this appendix. Those assumptions are combined with past experience to determine anticipated payments for the various components of the reserve. The likelihood of a payment being made has been based on past experience and expert advice (where appropriate). • Unattributable Regular Expenses

A provision is held for the regular administration costs of the Society in excess of the per policy loadings. This provision is calculated as the net present value of the projected budget which reduces at a rate related to the projected run off of the business.

• Exceptional Expenses

A provision is held for anticipated additional expenses over future years, including contractual commitments to HBOS in respect of pension scheme future service costs,



75

anticipated additional costs associated with servicing policies in the medium term and non-recurring project costs.

• Investment Expenses

An allowance for anticipated fund management expenses that are not covered in individual policy reserves elsewhere is included in this reserve.

• Non Contractual Withdrawals

The reserve also includes an allowance for potential surrenders where the "surrender value" exceeds the "normal reserve" (as described in 4 (1) above).

(2) UK Non-Linked Pension (Other than Accumulating With-Profits) - Additional Reserves With-Profits OB

This reserve of £33.3m is the allowance made for unattributable expenses and exceptional expenses.

(3) UK Accumulating With-Profits Life - Additional Reserves UWP

This reserve of £16.9m represents unattributable expenses and the potential cost of maintaining the current with-profits non-contractual termination terms as detailed in section 4 (1) above.

(4) UK Non-Linked Life (Other than Accumulating With-Profits) – Additional Reserves With- Profits OB

This reserve of £4.7m is the allowance made for the potential cost of maintaining the current with-profits non-contractual termination terms as detailed in section 4 (1) above and unattributable expenses.

(5) Non UK Non-Linked Accumulating With-Profits – Additional Reserves UWP

This reserve of £7.6m is the allowance made for mis-selling claims against the Society and unattributable expenses.

(6) Non UK Non-Linked (Other than Accumulating With-Profits) - Additional Reserves With-Profits

OB

This reserve of £9.7m is the allowance made for unattributable expenses. Reinsurance details

9. (1) All reinsurance ceded on a facultative basis is with reinsurers who are authorised to carry on

insurance business in the United Kingdom.

(2) (i) (d) The reinsurer is Halifax Life Limited.

(e) The reinsurer automatically provides cover in respect of 100% of the liabilities under all linked and non-profit policies, with the exception of immediate annuities in payment other than those arising from deferred annuity policies after 1 March 2001.



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(f) The premium payable since the last investigation was £62,697,473 (g) There is no deposit-back arrangement. (h) The treaty is open to new business. (i) There is no undischarged obligation of the insurer.

(j) £2,395m of mathematical reserves were ceded under the treaty. (k) There is nil retention by the insurer for new policies being ceded.

(l) The reinsurer is authorised to carry out insurance business in the United

Kingdom.

(m) The Society and the reinsurer are not connected. (n) The treaty is not subject to any material contingencies.

(o) Not applicable. (p) There were no financing arrangements in force at 31 December 2010.

(ii) (d) The reinsurer is Clerical Medical Investment Group Limited (CMIG).

(e) The reinsurer automatically provides 100% of the liabilities in respect of units

purchased in CMIG With-Profits fund which are available as an investment option for members of certain group pension schemes.

(f) The premium payable since the last investigation was £800,774.

(g) There is no deposit back arrangement.

(h) The treaty is open to new business.

(i) There is no undischarged obligation of the insurer.

(j) £22m of mathematical reserves were ceded under the treaty.

(k) There is nil retention by the insurer for new policies being ceded.

(l) The reinsurer is authorised to carry out business in the United Kingdom.

(m) The Society and the reinsurer are not connected.

(n) The treaty is not subject to any material contingencies.




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(iii) (d) The reinsurer is Clerical Medical Managed Funds Limited (CMMF).

(e) The reinsurer automatically provides 100% of the liabilities in respect of units purchased in CMMF funds which are available as an investment option for members of certain group pension schemes.

(f) The premium payable since the last investigation was £283,884. (g) There is no deposit back arrangement.

(h) The treaty is open to new business.

(i) There is no undischarged obligation of the insurer.

(j) £24m of mathematical reserves were ceded under the treaty.

(k) There is nil retention by the insurer for new policies being ceded.

(l) The reinsurer is authorised to carry out business in the United Kingdom.

(m) The Society and the reinsurer are not connected.

(n) The treaty is not subject to any material contingencies.


Reversionary bonus 10. Reversionary bonus has not been declared on classes of business where the mathematical reserves exceed

the lesser of £10m and 1% of the total.

THE EQUITABLE LIFE ASSURANCE SOCIETY REALISTIC VALUATION REPORT

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Introduction 1. (1) The date of the valuation was 31 December 2010

(2) The previous valuation was at 31 December 2009. (3) The date of the interim valuation was 30 June 2010. The Society has only one with-profits fund. Each of the following sections refers to that fund.

Assets 2. (1) The economic assumptions used to determine the value of future profits arising

from the non-profit insurance contracts were: Level and fixed escalation annuities

Current Valuation

Previous Valuation

Earned rate of interest on Non-profit assets (gross)

4.12% 4.35%

Discount rate applied to future cash flows

6.62% 6.85%

Per policy expense rate pa £3.13 p.a. £4.46 p.a. Expense inflation rate pa 3.40% 5.10%

The expense inflation rate shown is based on RPI inflation of 3.40% p.a. (previous valuation 3.60% p.a.) At the previous valuation there was an allowance for additional expense inflation of 1.50% p.a. due to a contract with a third party administrator (TPA). There is no additional allowance for additional expense inflation at the current valuation as the TPA contract no longer applies.

Index-linked annuities

Current Valuation

Previous Valuation

Earned real rate of interest on index-linked assets (gross)

0.22% 0.72%

Real discount rate applied to future cash flows

2.72%

3.22%

Per policy expense rate pa £3.13 p.a. £4.46 p.a. Real expense inflation rate pa 0.00% 1.50%


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Mortality bases

Current Valuation

Previous Valuation

Pensions annuities: - male lives 92.50% PNMA00mc

(U=2013) * 92.50% PNMA00mc (U=2012) *

- female lives 85.00% PNFA00mc (U=2013) *

85.00% PNFA00mc (U=2012) *

BLAGAB annuities: - male lives 72.5% IML00 Ult

(U=2010 ** 72.5% IML00 Ult (U=2009 **

- female lives 77.5% IFL00 Ult (U=2010) **

77.5% IFL00 Ult (U=2009) **

* the allowance for mortality improvements for PNMA00mc/PNFA00mc is

based on implied mortality improvements per PFA92mc/PFA92 mc ** the allowance for mortality improvements for IML00/IFL00 Ult is based on

implied mortality improvements per IMA92/IFA92

The implied mortality improvements are subject to a minimum improvement of 1.5%pa (unchanged from the previous valuation).

The Society’s remaining non-profit business is wholly reassured.

(2) Not applicable

(3) Not applicable (4) Not applicable

(5) Not applicable

With-Profits Benefits Reserve Liabilities 3. (1) The following table shows the valuation method used to calculate the realistic

value of the liabilities for the various product types together with the amounts of the with-profits benefit reserve and the future policy related liabilities.


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Product type Valuation

Method With-Profits Benefit Reserve £m

Future Policy Related Liabilities £m

Conventional with-profits P 83 (4) Life RSP contract R 94 (2) Flexible Protection Plans R 18 (4) Pensions RSP (3.5% GIR) R 2,957 495 Pensions RSP (0% GIR) R 676 (43) Total for these products 3,828 442 Aggregate de minimis contracts 17 (0) Grand total 3,845 442

R=Retrospective Method, P=Prospective Method

The Future Policy Related liabilities shown are based on the future cost of contractual guarantees (line 41 of Form 19), less the future value of charges of 1.0% p.a. (as described in section 4.(4)) to be taken from investment returns (line 35 of Form 19) and the future value of profits on surrender (line 36 of Form 19).

Actual expenses are charged to policy values and their equivalents each year. The realistic balance sheet allows for a realistic estimate of future expenses including an allowance for diseconomies of scale.

(2) Not applicable.

(3) With-profits insurance contracts with total with-profits benefit reserves of £17m

and future policy related liabilities of £0m were not modelled explicitly. To allow for these contracts the explicitly modelled liabilities were scaled up using the ratio of total regulatory reserves including these contracts to the total regulatory reserves excluding these contracts.

(4) Not applicable.

With-profits benefit reserves – Retrospective method

4. (1) (a) The methodology is unchanged from the previous year end. For all the Recurrent Single Premium that was valued on a retrospective basis 100% of the with-profits benefit reserve was calculated on an individual basis.

For Recurrent Single Premium business Policy Values have been

established as a proxy for asset shares (and hence the with-profits benefit reserve).

(b) None.

(c) Not applicable.

(2) (a) None.

(b) Not applicable.


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(3) (a) The date of the previous expense investigation was 31/12/09.

(b) Expense investigations are carried out every 12 months, and updated at six

monthly intervals. The numbers in this section relate to the year to 31 December 2010.

(c) (i) There were no initial expenses identified relating to the issue of new

policies where the policyholder has a contractual right to take out a new policy. There were no other initial expenses.

(ii) A charge of 1%pa of the with-profits benefit reserve (amounting to

approximately £40m) was made in respect of maintenance expenses that relate to the servicing, claims handling and management of the business.

(iii) expenses are charged to the with-profits benefits reserve by way of an

expense charge of 1% pa deducted from all contracts. The expense charge is expected to remain at 1% pa. This is a change from the assumption at the previous valuation that the expense charge would reduce from 1% pa to 0.5% pa from 1 January 2011.

(iv) £61m of expenses were categorised as exceptional expenses. These

expenses are charged against specific provisions held on the balance sheet.

(4) A charge of 1.0% p.a. of policy values (the “charge for capital and cost of guarantees”) is taken to make some allowance for the cost of guarantees incurred and to act as a buffer against risk and adverse experience.

(5) Not applicable

(6) The claims paid during the year comprised maturity values (being the higher of

Policy Values and the guaranteed benefit) and surrender values (being Policy Values reduced by the financial adjustment which for UK policies was 5% throughout 2010). The ratio of maturity claims to the corresponding Policy Values over the year prior to the valuation date was 100% (although more would have been paid out for cases where the guarantee bit). The corresponding ratio for surrenders/transfers was about 95%. The corresponding figures for maturities and surrenders/transfers for 2009 were 100% and 95% respectively, and for 2008 were 100% and 95% respectively.

(7) The investment return earned over the period from 31 December 2009 to 31

December 2010 was 8.4% (2009: 6.0%) before tax and expenses. There has been no increase in the with-profits benefit reserve for the period from 31 December 2009 to 31 December 2010. (2009: 5.5%) for with-profits recurrent single premium pension policies.


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With-profits benefits reserve – Prospective method

5. (1) For conventional with-profits business (whole of life and endowments) the key assumptions used in the prospective method of calculating the with-profits benefits reserve were:

(a) The discount rate applied to future benefits and premiums was 2.00% per

annum. This is based on the risk free rate of around 2.75%, netted down for tax and rounded down.

(b) Not applicable. (c) No assumption for future inflation of expenses is required in this

methodology.

(d) Future reversionary bonuses are assumed to be zero. The following table of final bonus factors was used to calculate the policy values at the valuation date.

Elapsed Final Bonus Rate

Term - Yrs % 0 0 1 0 2 0 3 1 4 2 5 3 6 3 7 3 8 4 9 4 10 4 11 4 12 4 13 4 14 4 15 5 16 5 17 5 18 5 19 5 20 5 21 5 22 5 23 5 24 5 25 6 26 7 27 10 28 16 29 24 30 32 31 39


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32 45 33 50 34 56 35 67 36 73 37 80 38 85 39 88 40 90 > 41 90

(e) Expenses are implicitly allowed for in the premiums valued.

(f) No allowance for surrenders was made.

(2) The methods in (1) involve only one set of key assumptions.

Costs of guarantees, options and smoothing 6. (1) Not applicable

(2) The methodology and assumptions are unchanged from the previous year end.

All the with-profits insurance contracts mentioned in 3 (1) were valued using a market consistent stochastic model. All the contracts were grouped according to the following grouping rules:

Recurrent Single Premium – these contracts were grouped by outstanding term,

ratio of final bonus to policy value (in 2% bands) and by the level of guaranteed interest rate (3.5% or 0% per annum).

For with-profits UK transfer plans and miscellaneous deferred annuities, a number of contracts have a Guaranteed Minimum Pension (GMP) underpin. These contracts also have the guarantees common to all Recurrent Single Premium business described above. For these policies the average cost of buying out the revalued GMP annuity benefit at State Pension Age (SPA) was calculated based on 500 simulations using the mortality basis for non-profit annuities set out section 2.(1) above and risk-free yields for 10 year Zero Coupon Bonds at SPA. Allowance was also made for expenses in payment including diseconomies of scale between the valuation date and SPA.

Conventional Endowments – these contracts were grouped by original term and

then by outstanding term.


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Numbers of benefits before and after applying grouping rules:

Product type Benefits Model Points

Conventional with-profits 6,271 668 Life RSP contracts 12,136 173 Flexible Protection Plans 3,781 147 Pensions RSP (3.5% GIR) 589,627 5,856 Pensions RSP (0% GIR) 190,299 4,495 Total 802,114 11,339

The grouping bases have been reviewed for this valuation, but no changes have been made since the 2005 year-end valuation.

In reviewing the grouping basis for each contract type, tests were done using

2009 year-end data with higher numbers of groups modelled. The value of the guarantee costs did not materially change. Therefore, no changes were made to the grouping bases.

(3) Not applicable.

(4) (a) (i) The methodology is unchanged from the previous year end.

For Recurrent Single Premium business there is a guarantee that the death benefit and the maturity benefit will not be less than the amount of the guaranteed fund plus any declared reversionary bonuses. The maturity guarantee applies where the policyholder retires on or after the Earliest Contractual Date (ECD) written into their policy. Most policies effected before 1 July 1996 have a guaranteed rate of interest of 3.5% that will be credited to the guaranteed amounts each year.

For the purpose of determining when policyholders will exit on

contractual terms, policies have been split into 2 categories -those that have not yet reached the ECD and those that have passed that date.

The assumed retirement ages in relation to the ECD are shown in the following table. The assumptions used have changed from the assumptions used in the previous valuation.


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Policyholders Before ECD

(years)

Policyholders on or after

ECD (years)

OriginalECD

Group Pensions -2 9 NRA Individual ("executive") Pensions

0 4 NRA


8 12 55*


4 7 60

Retirement Annuities 5 9 60 where NRA = Normal Retirement Age

* the ECD for Personal Pensions (non-DSS) business has changed to 55 from 50 following a change in legislation.

Policyholders already past the assumed retirement age were assumed

to retire immediately. This assumption is unchanged from the previous valuation.

Managed Pension policies were assumed to mature evenly over the 3 year period beginning at the valuation date. This assumption is unchanged from the previous valuation.

For endowment assurances there is a guarantee that the amount payable on death and the maturity value will not be less than the sum assured and any declared reversionary bonuses.

For some with-profits UK transfer plans and miscellaneous deferred annuities there is a Guaranteed Minimum Pension (GMP) at State Pension Age (see section 6.(2) above). A very small set of policies has guaranteed annuity options for which a provision of £6m is held. The provision was calculated deterministically, and increased by over 50% to allow for stochastic variation. For contracts other than conventional with-profits, the extent to which policy values exceeded guaranteed values at the valuation date, banded into percentages of policy values, is shown in the following table:


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% In / Out of money*

Policy values (£m)

Percentage

-100% to -50% 0 0% -49% to -30% 306 8% -29% to -20% 464 12% -19% to -15% 537 14% -14% to -10% 454 12% -9% to -5% 667 18% -4% to 0% 297 8% 1% to 5% 233 6% 6% to 10% 212 6% 11% to 15% 254 7% 16% to 20% 93 3% 21% to 30% 166 4% 31% to 50% 68 2% 51% to 100% 2 0% Total 3,753 100%

* Negative values indicate contracts currently “in the money” (i.e. where the current guaranteed fund exceeds the current policy value – this may change by maturity). The figures shown are percentages of policy value.

(a) (ii) The asset model used in the valuation is the Barrie & Hibbert

Economic Scenario Generator.

Nominal short-term interest rates are assumed to follow a LIBOR Market Model with semi-annual timesteps. The risk-free curve has been fitted to the gilt curve, and the volatility of interest rates has been calibrated to the implied volatility of swaption prices. In the Realistic Balance Sheet, liabilities are discounted at 0.02% above calibrated risk-free rates. This adjustment reflects the yields available on the risk-free assets held to back with-profits liabilities relative to yields implied by the calibrated yield curve. It also reflects the proportion of such assets. The adjustment made at the previous valuation was 0.03%.

The model for the real short-term rate is similar in structure.

Price inflation is modelled as the difference between the nominal and real short-term rate process.

Credit risk on corporate bonds is modelled using Barrie and Hibbert’s credit model, which is an extension of the Jarrow-Landow-Turnbull model.


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For equities and for properties, the ratios of total return in excess of the nominal short-term interest rate is assumed to be lognormally distributed with equity volatility varying by term, and a constant volatility assumption for property.

The volatility assumptions for the major classes of asset are chosen to be consistent with option market prices where available.

Barrie & Hibbert supply recommended parameters for use at each valuation, which are analysed before acceptance and use.

For the Realistic Balance Sheet, a risk-neutral set of parameters has been calibrated to be market-consistent. Barrie & Hibbert conduct a survey of OTC (over the counter) derivative price quotes from investment banks every quarter. These prices are used to update the market consistent calibrations every quarter.

At 31 December 2010, equity volatility is assumed to be as shown below, calibrated to implied volatilities on at-the-money FTSE 100 options varying by term as follows:

Term Implied Volatility

1 year 20.6% 2 years 22.0% 3 years 23.0% 5 years 24.3% 7 years 25.1% 10 years 26.1%

Over longer terms the excess volatility tends to 27.5%. This is Barrie & Hibbert's best estimate of long term excess volatility from their research.

Property volatility is assumed to be 15%. As it is not currently possible to observe meaningful option prices (and hence derive volatilities), this is based on Barrie & Hibbert’s best estimate from their research. Property Unit Trusts (PUTs) are modelled as property. These vehicles have issued a significant amount of debt in order to finance the property development. The market value of the PUTs modelled reflects the total exposure to property prices, with the amount of the debt being offset against cash in the with-profits fund.


88

Swaption volatilities implied by the calibration vary by term and duration with those obtained from market data. The fitting method is least squares over the swaption volatility surface with additional weight applied to options on 20 year swaps. The swaption volatilities from the Barrie & Hibbert ESG are shown in the following table. The volatilities shown are for at-the-money swaptions.

Swap Term (years) Option

Term (years)

1 5 10 20 30

5 23.1% 17.5% 15.8% 15.2% 14.6% 10 14.4% 13.3% 13.5% 13.2% 12.6% 15 14.4% 13.6% 13.6% 13.2% 12.2% 20 14.3% 13.9% 13.9% 13.0% 11.7% 25 15.2% 14.7% 14.5% 13.0% 11.5%

Correlations

Barrie & Hibbert also specified a correlation matrix. The risk-neutral correlations between equities and bonds and equities and short-term interest rates were derived from an analysis of historical data.

Key correlations are:

Equities / Government Bonds +0.16 Equities / Short Term Interest Rates -0.15 Equities / Property +0.35 Property / Government Bonds +0.10 Property / Short Term Interest Rates -0.10

These correlations are based on excess returns over cash rather than total returns


(a) (iii) Asset type (all UK assets)

n 5 15 25 35 5 15 25 35 5 15 25 35r Annualised compound equivalent of the risk

free rate assumed for the period.(to two decimal places) 2.40% 4.27% 4.49% 4.35% x x x x x x x x

1 Risk-free zero coupon bond 887,963 534,304 333,474 225,095 x x x x x x x x

2 FTSE All Share Index (p=1) 88,199 231,796 330,597 407,779 215,451 395,009 511,666 604,010 588,008 777,661 910,666 1,024,775 3 FTSE All Share Index (p=0.8) 81,456 181,726 234,314 268,173 201,362 316,354 369,517 404,648 558,743 638,293 673,862 701,026 4 Property (p=1) 31,407 107,071 176,137 235,522 133,025 241,126 328,984 402,884 522,073 616,287 709,235 794,460 5 Property (p=0.8) 27,277 72,104 105,055 129,318 120,113 173,284 207,179 233,008 490,279 474,081 478,503 490,672 6 15 year risk free zero coupon bonds (p=1) 12,678 11,703 9,030 20,336 74,436 63,588 77,076 122,480 485,327 459,959 467,971 506,131 7 15 year risk free zero coupon bonds (p=0.8) 10,934 5,846 1,997 1,747 64,667 30,621 15,627 19,486 450,501 291,527 214,439 198,353 8 15 year corporate bonds (p=1) 6,475 17,604 40,081 77,524 61,922 91,807 150,408 212,626 498,933 509,356 554,052 614,373 9 15 year corporate bonds (p=0.8) 5,335 8,141 13,372 22,766 52,047 46,269 56,878 75,897 464,035 341,623 300,632 297,296

10 Portfolio of 65% FTSE All Share and 35% Property (p=1) 49,407 155,686 238,443 307,423 161,453 302,720 403,275 487,178 543,422 676,640 787,899 888,615

11 Portfolio of 65% FTSE All Share and 35% Property (p=0.8) 44,273 114,328 156,034 186,031 148,143 229,805 272,984 304,622 512,701 537,947 557,026 578,456

12 Portfolio of 65% equity and 35% 15 risk free zero coupon bonds (p=1) 38,627 119,826 188,799 248,979 143,526 254,901 340,987 416,490 524,613 620,552 712,123 803,136

13 Portfolio of 65% equity and 35% 15 risk free zero coupon bonds (p=0.8) 34,113 83,790 116,208 142,280 130,738 186,623 220,154 246,443 493,582 482,875 487,502 503,450

14 Portfolio of 40% equity, 15% property, 22.5% 15 year risk free zero coupon bonds and 22.5% 15 year corporate bonds (p=1) 18,920 70,028 123,437 174,592 106,675 187,675 259,836 327,054 503,832 554,956 625,601 704,397

15 Portfolio of 40% equity, 15% property, 22.5% 15 year risk free zero coupon bonds and 22.5% 15 year corporate bonds (p=0.8) 15,988 42,970 65,220 84,615 94,642 125,985 150,127 172,382 471,165 413,268 401,678 409,933

16 Receiver swaption 5.90% 6.50% 5.80% 4.55% 7.25% 8.20% 7.11% 5.45% 8.62% 9.68% 8.15% 6.10%

K=0.75 K=1 K=1.5

L=15 L=20 L=25


90

(a) (iv) The initial net yields on equities and property were taken as 3.1% and 4.3% respectively.

(a) (v) Not applicable (a) (vi) For contracts other than conventional with-profits, the distribution of

contracts that currently have guaranteed values greater or less than policy values is shown in the following table:

Guaranteed values greater than policy values Outstanding Term Policy Value (£m) Percentage 20 to 40 Years 221 8% 10 to 20 Years 1,049 39% 5 to 10 Years 930 34% 0 to 5 Years 525 19% Whole Life* 0 0% Total 2,725 100%

Guaranteed values less than policy values Outstanding Term Policy Value (£m) Percentage 20 to 40 Years 111 11% 10 to 20 Years 264 26% 5 to 10 Years 313 30% 0 to 5 Years 340 33% Whole Life* 0 0% Total 1,028 100%

* A number of Recurrent Single Premium life policies (Critical Illness and Major Medical Plans) are written as whole of life policies.

The asset model has been calibrated to UK Government Bonds using Gilt Strips for a range of terms.

The model is calibrated to implied volatilities. The asset model produces:

• An equity implied volatility of 25.8% over ten years for the total return index. For comparison, the implied volatility of a ten-year at-the-money equity capital return index put option used for calibrating the model was 26.1%.

• Property volatility over ten years of 15.2% p.a. For comparison, the implied volatility assumption used for calibrating the model was 15%.


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• Zero coupon bond volatilities varying by outstanding term to redemption as follows:

Term (years)

Average expected volatility over next 20 years (%)

1 3.0 5 4.8

10 6.2 15 11.8 20 14.7 25 17.1

• Average correlations between asset classes as follows: - Total equity return and 10 year bond return: 17.3% - Total equity return and short term interest rates -14.7% - Total equity return and property return: 34.8% - Property return and 10 year bond return: 11.2% - Property return and short term interest rates -9.6%

These correlations are based on excess returns over cash rather than total returns.

Correlations with bonds of shorter and longer terms were similar to those shown above.

(a) (vii) The risk-free rate implied by the economic scenarios is compared against the calibrated risk free rate.

Checks were also made to ensure that the present value of future income, gains and losses on bonds, property and equities equal the starting market values of the assets.

(a) (viii) The results are based on 5000 simulations. Results based on batches

of 500 simulations show that increasing the number of simulations increases the accuracy of the results based on the assumptions used.

(b) Not applicable.

(c) Not applicable.

(5) (a) In the projection of assets and liabilities it has been assumed that policy

values (and hence the with-profits benefit reserve) would be changed in line with the change to the market value of assets. Any residual excess of assets over liabilities would be distributed over the lifetime of the existing business. In Form 19, any residual excess of assets over liabilities would be included under planned enhancements to with-profits benefits reserve (line 34) such that the working capital is zero.


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In the projection of assets and in line with planned investment strategy it is also assumed that the fund is rebalanced at the end of each year to a year dependant target asset mix. The target asset mix for the end of 2010 comprises of 8% equities, 8% property, 69% fixed interest assets (37% gilts and 32% corporate bonds) and the remainder in cash asset types. The projection of assets in future years comprises of a phased reduction to 0% property by the end of 2012 and a phased reduction to 0% equity by the end of 2016. The target asset mix for the end of 2016 comprises of 73% fixed interest assets (41% gilts and 32% corporate bonds) with the remainder in cash asset types. In previous valuations it has been assumed that the asset mix would remain constant from year to year. At the previous valuation the target asset mix was 11% equities, 9% property, 75% fixed interest assets (35% gilts and 40% corporate bonds) and the remainder in cash type assets.

(b) Future proportion of assets backing the with-profits benefit reserve which

consists of equities: 31/12/2010 31/12/2015 31/12/2020

(i) Base scenario 3.8% 1% 0% (ii) Yields increase by 17.5% 4.1% 0% 0% (iii) Yields reduce by 17.5% 3.8% 0% 0%

A further 1.8% of assets (allowing for gearing) were invested in Property

Unit Trusts and a further 8.3% of assets were directly invested in property. As described in section 10(b)(i), the assumed asset mix to which the fund is

rebalanced each year is changed in stress scenarios. The initial investment mix described in section 6(5)(a) is replaced by the initial asset mix immediately following application of the stress in the stress scenario being considered. The phased reduction of equity and property assets would still apply. The resulting percentages, as shown in the table above, are maintained over time through rebalancing the portfolio as required.

Future declared reversionary bonus rates are assumed to be zero throughout the projection period (unchanged from previous year end).

(6) Policyholders are assumed to take benefits on non-contractual terms at the

following rates. Some of the assumptions have changed from those used at the previous valuation:


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Product Surrender rate Initial Rate Ultimate Rate

Current

Valuation Previous Valuation

Current Valuation

Previous Valuation

Group AVC surrender 4.0% 4.5% 1.5% 1.5% Group Money

Purchase surrender 4.0% 4.5% 1.5% 1.5%

Individual ("executive") Pensions surrender 2.5% 4.0% 1.5% 1.5%

Personal Pensions (non-DSS) surrender 3.0% 5.5% 1.5% 1.5%

Personal Pensions (DSS) surrender 3.0% 5.5% 1.5% 1.5%

Retirement Annuities surrender 3.0% 5.5% 1.5% 1.5%

Life Business surrender 5.0% 5.0% 1.5% 1.5%

Single premium bonds automatic withdrawals 5.0% 5.0% 5.0% 5.0%

The surrender assumptions do not vary by policy year. They vary by duration from the valuation date. The assumed rate in the year following the valuation is the "Initial Rate" in the table above. Thereafter, the surrender rate is assumed to reduce by 0.5% each year until it reaches the "Ultimate Rate" in the table above. The paid-up assumptions were that no further contributions would be made to policies, except where contractually required to maintain the policy. For Recurrent Single Premium life policies it was assumed that, with the exception of the surrenders described above, all policyholders would take their benefits at their 10th anniversary dates (or, where policies have been extended, the next date at which any benefit could be taken on contractual terms). For Conventional with-profits policies it was assumed that, with the exception of the surrenders described above, all policyholders would take benefits on the date their policies mature.

(7) It was assumed that policyholders would make no further contributions to policies, except where contractually required to maintain the policy. Surrender rates are assumed not to vary by economic scenario. It was assumed that there would be no changes to retirement behaviour in low interest rate scenarios.


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A sensitivity analysis has been carried out to illustrate the potential impact on planned enhancements to with-profits benefits reserve of GIRs on RSP business under certain scenarios modelled on a stochastic basis, where the results are aggregated and the average liability is calculated. If investment returns fall below a given level, it is possible that policyholders may defer their retirement. If policyholders defer their retirement by up to 5 years (from that previously assumed), while the interest rate in the scenario is below 2.5%, then the planned enhancements would reduce by £40m. If the level of interest rates at which behaviour changes is 3.5% and the same period of deferment is assumed, the amount is £70m. If the deferral were for a period of up to 10 years, the amounts are £50m at 2.5% and £100m at 3.5% respectively. The Society has purchased a series of receiver swaptions with a range of terms. The purpose of these swaptions is to provide additional capital when interest rates on similar fixed-interest securities are anticipated to fall. These swaptions are designed to partially mitigate any increase in liabilities for RSP policies with a non–zero GIR if policyholders defer their retirement plans. The total market value of the swaptions at 31 December 2010 was £35m. A fall in interest rates of 1.0% at all terms would increase the value of the swaptions by £36m and a similar increase would decrease the value by £18m.

Financing Costs

7. Not applicable.

Other long-term insurance liabilities 8. There are several provisions in respect of various review programmes and to cover

other risks. These liabilities also include allowance for short-term exceptional expenses mainly in connection with these review programmes and litigation costs. The total provision of £286.6m is composed of the following elements:

£m Regular expenses 180.8 Exceptional expenses 103.8 Other miscellaneous liabilities including mis-selling 2.0 Total other long-term insurance liabilities 286.6

An expense provision of £180.8m has been established against potential higher future costs arising as the fund runs off. The aim is to be able to maintain a stable percentage point charge to with-profits policies for regular expenses. The charge will remain at 1% p.a. This is a change from the assumption at the previous valuation that the expense charge would reduce from 1% pa to 0.5% pa from 1 January 2011 This change in assumptions reflects the decision to bring administration services back in-house rather than proceed with the planned change in TPA provider.


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Realistic current liabilities 9. These liabilities include tax and social security creditors, other creditors arising out of

direct insurance operations and a liability relating to the staff pension scheme (£83 m). The total realistic current liabilities of £173m are the same as the regulatory valuation current liabilities.

Risk Capital Margin 10. (a) The Risk Capital Margin at 31 December 2010 was zero. This is a consequence

of reducing the planned enhancements to policyholders as described in section 10(b)(i) below. The stress scenarios described below were tested:

(i) The scenarios tested were rises and falls in the values of equities and

property of 20% and 12.5% respectively. These percentages were applied to both UK and non-UK assets. The scenario where the market values of equities and property fell was the most onerous scenario.

(ii) The scenarios tested were a rise and fall of 17.5% of the long term gilt yield

(being 69.81 basis points) for yields at all durations. The scenario where yields rise was the most onerous scenario prior and after to the impact of management actions.

(iii) (a) The credit risk scenario resulted in an average increase in the spread

of about 72 basis points in respect of corporate bonds in the with-profits fund. The resultant fall in market values was approximately 6.3% of the total value of those bonds.

(b) Not applicable

(c) The credit risk event was not applied to the portfolio of business that is reassured with HBOS plc (a subsidiary of Lloyds Banking Group).

(d) Not applicable (e) Not applicable

(iv) The overall increase in the realistic value of the liabilities as a result of applying the persistency stress was 1.0%.

(v) Not applicable

(b) (i) In the stress scenarios it has been assumed that when asset values fall at the start of the projection there will be an immediate reduction in policy values equal to the same percentage reduction. When asset values increase due to a fall in yields no further change in the policy values was assumed.

In the stress scenarios where yields rise it has been assumed that the charge

for capital and cost of guarantees is increased from 1% to 1.25%. In the stress scenarios where yields fall it has been assumed that the charge for capital and cost of guarantees is increased from 1% to 1.5%.


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In the stress scenarios the value of the swaptions changes. In the stress scenarios where yields rise the value of assets was reduced by the £14m fall in the value of the swaptions. In the stress scenarios where yields fall the swaptions increased in value by £23m. However, the value of assets was not adjusted as it was assumed that the increase would be exactly offset by the impact of RSP policyholders deferring their retirement plans.

In the stress scenarios it is assumed that the target asset mix to which the

fund is rebalanced at the end of each year, as described in section 6(5)(a), is changed with the fund instead being rebalanced each year to the actual asset mix immediately following application of the stresses.

(ii) The reduction to policy values, changes to asset mix as described above and

increase in charges described in section 10(b)(i) above reduces the RCM. The amount of the RCM calculated before and after these changes would be as follows:

Stress scenario Before After

------------------ -------- -------- Yields rise £160m £50m Yields fall £190m £108m As described in section 6(5)(a), any residual excess of assets over liabilities would be included under planned enhancements to with-profits benefits reserve such that the Working Capital remains zero. Therefore the Risk Capital Margin is zero.

(iii) Changing the asset mix in the stress scenarios, as described above, results

in the equity backing ratios as shown in the table below.

31/12/2010 31/12/2015 31/12/2020

Yields increase by 17.5% without management action

4.1%

0%

0%

Yields reduce by 17.5% without management action

3.8%

0%

0%

Yields increase by 17.5% with management action

4.1%

0%

0%

Yields reduce by 17.5% with management action

3.8% 0% 0%

There are assumed to be no future declared reversionary bonuses.

(iv) In the most onerous stress scenario the value of past and future cost of guarantees is in excess of the value of past and future charges i.e. the requirements of INSPRU 1.3.188R would be met.

(c) (i) No assets are required to cover the risk capital margin.

(ii) Not applicable.


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11. Tax

Tax is payable on an “I-E” basis for life business. The tax payable is deducted from future increases to policy values (or their equivalents).

12. Derivatives

The Society holds a series of swaptions to partially mitigate the impact of RSP pensions policyholders deferring their retirement plans during periods of low interest rates. Margining is used to provide appropriate collateral. The total market value of the swaptions at 31 December 2010 was £35m (£34m at 31 December 2009). In December 2009 the Society purchased a US Dollar forward exchange contract to reduce its exposure to exchange rate movements. During 2010, the Society bought a long US Dollar forward exchange contract to adjust its exposure to exchange rate movements following the sale of some US Dollar denominated assets. At 31 December 2010 the nominal amount of the contracts net of the long position was US$136m (US$130 at 31 December 2009). At December 2010, a number of long Gilt futures contracts with a nominal value of £26m were held. This was a temporary position while rebalancing the fund’s fixed interest holdings was carried out. The contracts were sold in January 2011.

13. Analysis of change in working capital The movement in the Working Capital from £0m at the previous valuation to £0m has been analysed as follows:

Item Effect (£m)

Add back opening zeroisation impact 673 Investment return on the opening working capital 52 Mismatch profits and losses on assets backing the future policy related liabilities -147 Economic assumption changes -1 Other valuation assumption changes 83 Investment variance 229 Demographic and expense variance -211 Change in provisions and current liabilities 0 Modelling changes 0 Other 15 Closing zeroisation impact (693) Total change 0

14. Optional Disclosure

Not applicable

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RETURNS UNDER INSURANCE COMPANIES LEGISLATION THE EQUITABLE LIFE ASSURANCE SOCIETY FINANCIAL YEAR END 31 DECEMBER 2010 ADDITIONAL INFORMATION AS REQUIRED BY IPRU (INS) 9.29 (a) All derivative transactions may only be entered into following prior approval by the

Society’s Executive Investment Committee, which operates within guidelines set by the Board. In all cases, use of derivative instruments is restricted to the purpose of managing exposure and reducing risk. No derivative contracts were entered into on a speculative basis.

(b) There are no specific guidelines for the use of contracts not reasonably likely to be

exercised. However, the Society's Board only allows the use of derivatives for the purpose of efficient portfolio management or to reduce risk.

(c) The fund holds receiver swaptions, at a range of terms, to partially hedge guaranteed

investment return risk within the fund. Each position pays out if 10-year swap rates are below 4.5% at the time of exercise. The strike of 4.5% is at a high enough level that the Society considers itself not to have entered into contracts not reasonably likely to be exercised. As at 31 December 2010, 100% of the swaption holdings by value are 'in the money'.

(d) The Society did not, at any time during the financial year, hold a derivative contract

which required a significant provision to be made for it under INSPRU 3.2.17R or (where appropriate) did not fall within the definition of a permitted derivative contract.

(e) The Society did not grant any rights under derivative contracts during the óÉ~r.

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RETURNS UNDER INSURANCE COMPANIES LEGISLATION THE EQUITABLE LIFE ASSURANCE SOCIETY FINANCIAL YEAR END 31 DECEMBER 2010 ADDITIONAL INFORMATION AS REQUIRED BY IPRU (INS) 9.30 The Society has no shareholder controllers because it is a mutual company.

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RETURNS UNDER INSURANCE COMPANIES LEGISLATION THE EQUITABLE LIFE ASSURANCE SOCIETY FINANCIAL YEAR END 31 DECEMBER 2010 CERTIFICATE REQUIRED BY IPRU(INS) 9.34 AND APPENDIX 9.6 We certify that: 1) the return has been properly prepared in accordance with the requirements in

IPRU(INS), GENPRU and INSPRU; 2) we are satisfied that:

a) throughout the financial year ended 31 December 2010 and other than as specified below, the Society has complied in all material respects with the requirements in SYSC and PRIN as well as the provisions of IPRU(INS), PRU, GENPRU and INSPRU (as applicable); and

The Society is dependent on the delivery of administration and investment services by HBOS group of companies within the Lloyds Banking Group (“HBOS”), BlackRock Investment Management (UK) Limited ("BlackRock") (from 1 October 2010), Insight Investment Management (Global) Limited ("Insight") (until 30 September 2010) and Invista Real Estate Investment Management ("Invista"). The Society is reliant on the systems and controls operated by HBOS, BlackRock, Insight and Invista and, in making the above statement in respect of SYSC, the directors have relied upon information received from and appropriate disclosures having been made by those organisations to the Society.

b) other than as specified in (a) it is reasonable to believe that the

Society has continued so to comply subsequently, and will continue so to comply in future;

3) in our opinion, premiums for contracts entered into during the financial year

ended 31 December 2010 and the resulting income earned are sufficient, under reasonable actuarial methods and assumptions, and taking into account the other financial resources of the Society that are available for the purpose, to enable the Society to meet its obligations in respect of those contracts and, in particular, to establish adequate mathematical reserves;

4) the sum of the mathematical reserves and the deposits received from

reinsurers as shown in Form 14 constitute proper provision as at 31 December 2010 for the long-term insurance liabilities (including all liabilities arising from deposit back arrangements, but excluding other liabilities which had fallen due before 31 December 2010) including any increase in those liabilities arising from a distribution of surplus as a result of an actuarial investigation as at that date into the financial condition of the long-term insurance business;

5) the with-profits fund has been managed in accordance with the Principles and

Practices of Financial Management, as established, maintained and recorded under COBS 20.3; and

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6) we have, in preparing the return, taken and paid due regard to:

a) advice from the actuary appointed by the Society to perform the actuarial function in accordance with SUP 4.3.13R; and

b) advice from the actuary appointed by the Society to perform the

with-profits actuary function in accordance with SUP 4.3.16AR. Ian Brimecome, Chairman ________________________________________________________________ Chris Wiscarson, Chief Executive ______________________________________________________________ Tim Bateman, Finance Director ________________________________________________________________ 30 March 2011

102

RETURNS UNDER INSURANCE COMPANIES LEGISLATION AUDITORS' REPORT: REGULATORY RETURN FOR A LIFE INSURANCE COMPANY FINANCIAL YEAR END 31 DECEMBER 2010 REPORT TO THE DIRECTORS PURSUANT TO RULE 9.35 OF THE INTERIM PRUDENTIAL SOURCEBOOK FOR INSURERS We have audited the following documents prepared by the insurer pursuant to the Accounts and Statements Rules set out in Part I and Part IV of Chapter 9 to IPRU(INS) the Interim Prudential Sourcebook for Insurers, GENPRU the General Prudential Sourcebook and INSPRU the Prudential Sourcebook for Insurers (‘the Rules’) made by the Financial Services Authority under section 138 of the Financial Services and Markets Act 2000:

• Forms 2, 3, 13, 14, 17 to 19, 40 to 43, 48, 49, 56, 58 and 60, (including the supplementary notes on pages 54 to 59) (‘the Forms’);

• the statement required by IPRU(INS) rule 9.29 on page 98 (‘the Statement’);

• the valuation report required by IPRU(INS) rule 9.31(a) on pages 60 to 77 (‘the

valuation report’); and

• the statements, analysis and reports required by IPRU(INS) rule 9.31(b) on pages 78 to 97 (“the realistic valuation report”)

We are not required to audit and do not express an opinion on:

• Forms 46 to 47, 50 to 54, 57, 59A and 59B (including the supplementary notes on pages 54 to 59);.

• the statements required by IPRU(INS) rules 9.30 and 9.36 on pages 99 and 105; and

• the certificate required by IPRU(INS) rule 9.34(1) on pages 100 to 101 (‘the

Certificate’). Respective responsibilities of the insurer and its auditors The Society is responsible for the preparation of an annual return (including the Forms, the Statement, the valuation report, and the realistic valuation report), the forms and statements not examined by us and the certificate under the provisions of the Rules. The requirements of the Rules have been modified by a direction issued under section 148 of the Financial Services and Markets Act 2000 on 21 December 2007. Under IPRU(INS) rule 9.11 the Forms, the Statement, the valuation report, the realistic valuation report, the forms and statements not examined by us and the certificate are required to be prepared in the manner specified by the Rules and to state fairly the information provided on the basis required by the Rules. The methods and assumptions determined by the Society and used to perform the actuarial investigation as set out in the valuation report and the realistic valuation report, prepared in accordance with IPRU(INS) rule 9.31 are required to reflect appropriately the requirements of INSPRU 1.2 and 1.3.

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It is our responsibility to form an independent opinion as to whether the Forms, the Statement, the valuation report and the realistic valuation report meet these requirements, and to report our opinion to you. We also report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

• the Forms, the Statement and the valuation report are not in agreement with the accounting records and returns; or

• we have not received all the information we require for our audit. This report has been prepared for the directors of the insurer to comply with their obligations under IPRU(INS) rule 9.35 and for no other purpose. We do not, in providing this report, accept or assume responsibility for any other purpose save where expressly agreed by our prior consent in writing. Basis of opinion We conducted our work in accordance with Practice Note 20 'The audit of insurers in the United Kingdom (Revised)' issued by the Auditing Practices Board. Our work included examination, on a test basis, of evidence relevant to the amounts and disclosures in the Forms, the Statement, the valuation report and the realistic valuation report. The evidence included that previously obtained by us relating to the audit of the financial statements of the Society for the financial year. It also included an assessment of the significant estimates and judgements made by the Society in the preparation of the Forms, the Statement, the valuation report and the realistic valuation report. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Forms, the statement, the valuation report and the realistic valuation report are free from material misstatement, whether caused by fraud or other irregularity or error and comply with IPRU(INS) rule 9.11. In accordance with IPRU(INS) rule 9.35 (1A), to the extent that any document, Form, Statement, analysis or report to be examined under IPRU(INS) rule 9.35(1) contains amounts or information abstracted from the actuarial investigation performed pursuant to IPRU(INS) rule 9.4, we have obtained and paid due regard to advice from a suitably qualified actuary who is independent of the Society.

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Opinion In our opinion: (i) the Forms, the Statement, the valuation report and the realistic valuation report fairly state the information provided on the basis required by the Rules as modified and have been properly prepared in accordance with the provisions of those Rules; and (ii) the methods and assumptions determined by the Society and used to perform the actuarial investigation as set out in the valuation report appropriately reflect the requirements of INSPRU 1.2 and 1.3. PricewaterhouseCoopers LLP Registered Auditor 30 March 2011

105

RETURNS UNDER INSURANCE COMPANIES LEGISLATION THE EQUITABLE LIFE ASSURANCE SOCIETY FINANCIAL YEAR END 31 DECEMBER 2010 STATEMENT OF INFORMATION REQUIRED BY IPRU (INS) 9.36 R Merry was the With-Profits Actuary for the Society throughout the year. The particulars to be given in compliance with IPRU (INS) 9.36 are :- a) Shareholding

R Merry had no interest in any shares or debentures issued by the Society.

b) Pecuniary Interest

R Merry holds unit-linked benefits in the AVC Scheme of the Equitable Pension Fund and Life Assurance Scheme under which premiums of £2,400 were paid during 2010.

c) Aggregate Remuneration

R Merry's services as With-Profits Actuary were supplied under a contract of administration between the Society and a subsidiary of HBOS plc, which is part of Lloyds Banking Group. R Merry was employed by companies in the Lloyds Banking Group during the period in question. R Merry was not a Director of the Society.

d) Other Pecuniary Benefits

R Merry received no other pecuniary benefit from the Society. The Society requested R Merry to furnish the particulars specified in IPRU (INS) 9.36. The above particulars were furnished by R Merry and they agree with the Society's records.

Documents

THE EQUITABLE LIFE ASSURANCE SOCIETY